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A Letter from the Assistant Administrator
The goal of the Public-Private Partnerships initiative is to bring together public
and private interests to meet the demands of future environmental protection.
The success of our initiative, and the products which we are generating, is con-
tingent upon local governments' ability to provide the necessary environmental
services at a reasonable cost. Many of our efforts focus on providing tools for
local communities to determine how partnerships work to improve or expand en-
vironmental services in your communities.
This case studies report provides concrete examples to local officials of how
successful partnerships can be formed and work for the benefit of both the public
and private sectors. Many municipalities around the country already have ex-
tensive experience and expertise in the formation and implementation of public-
private partnerships.
Case studies can be used by localities and states to avoid the pitfalls experienced
by others. We would like to hear from communities around the country about
other examples of successful partnerships.
Governments must take steps now to meet the rising cost of environmental
services. There will be difficult struggles ahead, but we can overcome these
obstacles by working together and sharing what we have learned.
Charles L. Grizzle
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PURPOSE OF THIS REPORT
The purpose of this report is:
To provide examples of how partnerships work and how they are
developed.
To indicate lessons learned in implementing partnerships and why
they are successful.
To provide local communities useful information on developing or
choosing partnership options.
WHO SHOULD READ THIS DOCUMENT
Local communities who have an interest in public-private partner-
ships and how to implement them.
State government officials who are interested in promoting or learn-
ing about public-private partnerships at the local level.
Leaders in business, finance, banking and industry who can pro-
vide the necessary knowledge and technology for environmental
infrastructure projects.
Representatives of non-profit organizations, such as environmental
groups, associations, foundations, and academia who are inter-
ested in exploring this area further.
EPA employees who are interested in public-private partnerships
and want to understand what works and why.
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TABLE OF CONTENTS
Title
Executive Summary
Chapter 1:
A.
B.
C.
D.
E.
Chapter II:
Chapter III:
A.
B.
Chapter IV:
A.
B.
Introduction
The Cost of Environmental Protection
The Role for Public-Private Partnerships
What are Public-Private Partnerships
Types of Partnerships
Benefiits of Partnerships
Components of Successful Public-Private Partnerships
Solid Waste Management Case Studies
Private Involvement in Providing Solid Waste Management
Case Studies of Public-Private Partnerships for Solid Waste
Management
1 . Lee County, Alabama
2. Huntsville, Alabama
3. Bristol, Connecticut
4. Stamford, Connecticut
5. Hillsborough County, Florida
6. Millbury, Massachusetts
7. St. Cloud, Minnesota
8. Seattle, Washington
Wastewater Treatment Case Studies
Private Involvement in Providing Wastewater Treatment
Services
Case Studies of Public-Private Partnerships for Wastewater
Treatment
1 . Auburn, Alabama
2. Chandler, Arizona
3. Escondido, California
4. Orlando, Florida
5. Mount Vernon, Illinois
6. Clinton, Kentucky
7. Edgewater, New Jersey
Page
V
3
3
3
3
4
6
11
17
17
19
20
24
27
31
35
39
43
47
53
53
55
56
60
64
68
71
75
79
III
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TABLE OF CONTENTS (Cont)
Title
Chapter V:
A.
B.
8. Hood River, Oregon
Drinking Water Case Studies
Private Involvement in Drinking Water Supply
Case Studies of Public-Private Partnerships for Drinking Water
Supply
1. Sabine Parish, Louisiana
2. Belen, New Mexico
3. Irving, Texas
4. York County, Pennsylvania
5. Lititz, Pennsylvania
6. Westmoreland County, Pennsylvania
7. Myrtle Beach, South Carolina
Page
83
89
89
90
91
95
99
103
107
111
115
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EXECUTIVE SUMMARY
This report examines 23 case studies of public-private partner-
ships throughout the United States. They are organized by three
environmental service areas: solid waste, wastewater treatment,
and drinking water. The introduction explains the types and
benefits of public-private partnerships and Chapter II lists the attrib-
utes of successful partnerships. The remainder of this report
emphasizes case study examples in solid waste, wastewater
treatment, and drinking water. Individual chapters are devoted to
each of the three environmental service areas.
Each case study is presented in a similarformat which provides the
reader with basic information on how the partnership was formed
and implemented, as well as characteristics of the community. The
following list summarizes the topics covered in each case study.
Characteristics of the community and the project including
income, population, time frame, and cost;
Public decision-making process in the selection of a private
partner;
Financing responsibilities of the public and private part
ners;
Procurement arrangements used to secure private involve
ment;
Division of responsibilities for project implementation;
Description of how the project was implemented;
Evaluation of why the project was successful;
Lessons learned and their applicability to other situations; and
Contacts for further information.
The major emphasis of this report is the case study examples. We
selected as many different locations and types of partnerships as
possible in our sampling of case studies. We discovered that many
successful partnerships exist and communities are experienced
participants in public-private partnerships.
Exhibit 1 presents a summary of all 23 case studies.
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CASE STUDIES
SUMMARY CHART
MEDIA
SOLID WASTE
WASTEWATER
TREATMENT
WATER SUPPLY
TYPE OF PARTNERSHIP
Merchant Facility
Landfill
Turnkey Contract
Resource Recovery Facility
Privatization
Resource Recovery Facility
Contract Services
Rail-Haul of Incinerator Ash
Turnkey Contract
Resource Recovery Facility
Merchant Facility
Resource Recovery Facility
Merchant Facility
Solid Waste Composting Plant
Contract Services
Curbside Recycling Program
Privatization
Wastewater Treatment Plant
Privatization
Wastewater Reclamation Plant
Developer Financing
Sewer Access Rights
Developer Financing
Impact Fees
Turnkey Contract
Wastewater Treatment Plant
Turnkey Contract
Wastewater Treatment Plant
Turnkey Contract
Wastewater Treatment Plant
Contract Services
Wastewater Treatment Plant
Contract Services
Public Water Systems
Developer Financing
Private Water System
Contract Services
Private Development of Wells
Privatization
Acquisition of Small Water Systems
Contract Services
Public Water Systems
Contract Services
Public Water System
Turnkey Contract
Public Water System
POPULATION
80,800
165,430
62,410
109,370
825,41 1
11,500
181,570
491,800
29,760
68,220
83,550
160,408
17,470
1,600
4,674
4,480
1,600
327
130,200
9,344
7,590
90,683
27,800
LOCATION
Lee County, AL
Huntsville, AL
Bristol, CT
Stamford, CT .
Hillsborough County, FL
Millbury, MA
St. Cloud, MN
Seattle, WA
Auburn, AL
Chandler, AZ
Escondido, CA
Orlando, FL
Mount Vernon.'lL
Clinton, KY
Edgewater, NJ
Hood River, OR
Sabine Parish, LA
Belen, NM
Irving, TX
York County, PA
Lititz, PA
Westmoreland County, PA
Myrtle Beach, SC
VI
Exhibit 1
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CHAPTER I
INTRODUCTION
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CHAPTER I INTRODUCTION
A. The Cost of
Environmental Protection
Faced with the escalating costs of environmental protection and
the competing pressures of other public programs, governments
may be limited in their ability to finance all of the environmental
protection activities anticipated by Congress. The cost to EPA,
states and local governments of maintaining current levels of en-
vironmental quality is expected to reach $55 billion a year, by the
year 2000, compared to 1987 outlays of roughly $40 billion a year.
Thus, the public sector will have to spend an additional $15 billion
a year by the turn of the century to maintain current levels of
environmental quality. These figures are conservative since they
do not reflect any of the environmental programs envisioned by
Congress beyond 1987, and none of the growing number of new
state and local environmental mandates.
This shortfall affects all levels of government. But it is at the local
level that the budget crunch is most telling. In 1981, for example,
all local governments combined paid 76 percent of the nation's bill
to comply with federal environmental mandates. By the year 2000,
local units could bear over 87 percent of the cost of environmental
programs.
The local decision-maker is going to need to examine new and
innovative ways of delivering environmental services and in mak-
ing choices on how to spend that last dollar.
B. The Role for
Public-Private Partnerships
In light of the serious budget constraints facing federal, state, and
local governments, EPA believes that public-private partnerships
have great potential to help meet the growing environmental and
resource challenges facing this country in the 1990's and beyond.
Greater private involvement can increase public resources avail-
able for environmental protection in at least two ways:
Private equity can free municipal resources for other invest-
ments, and
Properly designed and executed partnerships can provide
improved environmental services at the lowest possible cost to
the public.
C. What are
Public-Private Partnerships?
A partnership is a contractual relationship between a public and
private party that commits both to providing an environmental
service. The public and private partners generally share respon-
sibility for any one or more of the following activities:
Deciding to provide an environmental service in a community;
Financing the project using public and/or private funds;
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Designing and/or constructing the facility;
Operating and maintaining the facility or service.
D. Types of Partnerships
Contract Services
Within this broad definition, each public-private partnership is
unique, with transactions designed to meet the particular needs of
different communities. Public-private partnerships generally fall
into five categories:
Contract Services. In this type of arrangement, a private partner
is Contracted to provide a specific municipal service, such as
garbage collection, or to maintain and operate a facility, such as a
wastewatertreatment plant. The facilities are owned by the public
sector.
Communities typically turn to contract operations for two reasons:
limited ability to operate facilities properly under regulatory or
enforcement pressure to achieve minimum environmental stan-
dards, or escalating operating and maintenance costs.
Many communities have found that contracting with the private
sector is cheaper than public provision of services. This has been
confirmed in several surveys and studies. For example, a Colum-
bia University study of 2,060 cities around the country found that
refuse collection by private contractors costs from 28 to 48 percent
less than public delivery of the service.
Turnkey Projects Turnkey Projects. In turnkey projects, a private partner designs,
constructs, and operates an environmental facility that is owned by
the public sector.
r
I
In such arrangements, financing risk is generally assumed by the
publicowner, with bond repayment secured by userfees of one sort
or another. Performance risk, on the other hand, is generally
assumed by the private partner, with written guarantees of mini-
mum levels of service and/or compliance with all applicable envi-
ronmental standards.
While no statistics have been collected on their frequency, turnkey
transactions have been relatively common for many years, espe-
cially for solid waste disposal and wastewater treatment facilities.
Developer Financing Developer Financing. In this type of arrangement, a private party
(usually private developers) finances the construction or expan-
sion of an environmental facility in return for the right to build
houses, stores, or industrial facilities.
i
In atypical situation, a private real estate developer wants to build
new houses which would cause excess demand on the community's
wa$tewater treatment facilities. The community then charges a
fee, or requires the developers to purchase capacity in the treat-
ment plant, which is used to expand or upgrade the facility.
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Privatization
Merchant Facilities
Developer!inancing arrangements, which are often called capacity
credits, sewer access rights, impact fees or exactions are most
commonly found in the wastewater treatment area.
While no statistics are available on the frequency of developer
financing, anecdotal reports suggest that this type of partnership is
growing. For example, one recent national survey found 190 cities
with populations above 15,000 that used impact fees to finance
wastewater treatment plants. They are used most frequently in
rapidly developing regions in states such as California, Florida,
Colorado, and Texas.
Privatization. In privatization, a private party owns, builds, and
operates a facility. They also partially or totally finance the
operation.
The private ownership of environmental facilities was a popular
concept prior to the passage of the Tax Reform Act of 1986. As a
result of reduced tax incentives however, private interest in owning
facilities that provide public services has been reduced considera-
bly.
Where strict privatization continues to be pursuedin solid waste
management, largelygovernment is motivated by the goal of
sharing the risks of high technology solutions to environmental
management. The private profit incentive remains where tax-
driven benefits have been replaced by higher payments for serv-
ices (higher user fees). Frequently, privatized facilities provide
services to more than one government.
Merchant Facilities. In this type of arrangement, not only does the
private sector own and operate the facility as in privatization deals,
but they also make the decision to provide an environmental
service to a community. It is similar in concept to a fast food
franchise except that it involves environmental services. Merchant
plants are generally associated with the provision of solid waste
management services: landfills, composting facilities, and recy-
cling plants.
For each type of partnership, the following chart characterizes the
relative roles of public and private partners in providing environ-
mental services.
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r
Public-Private Partnerships:
Division of Responsibilities
Activity
Decision to
Provide Services
Financing
Design
Construction
Ownership
Operation&
Maintenance
Contract
Services
Public
Public
Public
Public
Public
Private
Turnkey
Facility
Public
Public
Private
Private
Public
Private
Developer
Financing
Public
Private
Either
Either
Either
Either
Privat-
ization
Public
Private
Private
Private
Private
Private
Merchant
Facility
Private
Private
Private
Private
Private
Private
Exhibit 2
E. Benefits of Partnerships
When properly structured and matched to local needs, public-
private partnerships offer benefits to all of their participants. Ide-
ally, they provide competitive economic returns to the private
partners while delivering high-quality environmental services at
reasonable costs to users. Municipalities have pursued a variety
of partnership arrangements for the following reasons:
Reduced costs. Savings result from the freedom from com-
petitive bidding and the paperwork associated with intergov-
ernmental grants, as well as design/construct/operate efficien-
cies and private access to new low-cost technologies. While
the literature is more rhetorical than analytical, limited esti-
mates of combined capital and operating cost savings com-
pared to public provision of services vary from 5 percent to 40
percent.
Rapid Project Completion. Faster start-up is due in large part
to the avoidance of competitive bidding and contracting con-
straints associated with intergovernmental grants. In Auburn,
Alabama, for example, the first of two pre-1986 Tax Reform
privatized plants was completed under budget and 50 percent
ahead of schedule.
Guaranteed Performance. Any of the public-private partner-
ship arrangements that involve private operation generally
shiftfrom the public to the private sectorthe responsibilities for
environmental permitting, proper operation and maintenance,
compliance with all applicable environmental regulations, and
adequate environmental sampling and effluent monitoring.
This represents a primary benefit, particularly in small commu-
nities.
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Preservation of Jobs. Many communities consider public-
private partnerships as a way to reduce high operating ex-
penses while maintaining jobs. Under continued public own-
ership, the plant would cut staff. In most public-private ar-
rangements, the private partner guarantees the jobs of existing
municipal staff. Hence, jobs that might have been lost to
cutbacks can be preserved under privatization.
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CHAPTER II
COMPONENTS OF SUCCESSFUL
PUBLIC-PRIVATE PARTNERSHIPS
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COMPONENTS OF SUCCESSFUL
CHAPTER II PUBLIC-PRIVATE PARTNERSHIPS
Attributes of Successful
Public-Private Partnerships
Local Incentive
Supportive Legal and
Institutional Environments
The case studies suggest that several attributes of public-
private partnerships contribute to their success. Each of the
following components appears to be a prerequisite of success
in one way or another.
Local incentive to seek private assistance is a majorfactor in the
initiation of public-private partnerships. Typically this incentive
resultsfromdevelopmental pressure and/orpoor environmental
performance coupled with limitations on access to federal or
state grants. For example, Mount Vernon, Illinois was faced
with a ban on new connections to its failing wastewater
treatment plant and, therefore, could not attract new industry.
City officials felt that they had to act quickly and could not wait
until they received a federal grant. To overcome sewer
restrictions as soon as possible the city contracted with a
private company to design, construct, and operate an upgraded
and expanded wastewater treatment plant. Sewer restrictions
were lifted after the first phase of construction was completed.
Comfortable legal and institutional environments may make it
easier to foster partnerships. Seven states have enacted or
considered specific legislation that encourages public-private
partnerships. Another 12 states have more general legislation
that gives local units the authority to enter into privatization
agreements.
The Edgewater, New Jersey case study is a good example of
how favorable state laws can encourage partnerships. Edge-
water, New Jersey was able to seek a private partner as a result
of a state law passed in 1986. The law enables local govern-
ments to contract with private companies for the financing,
design, construction and operation of wastewater treatment
plants.
At the core of most privatization statutes are the rights provided
local governments to enter into long-term service contracts with
private firms. Other provisions found in privatization statutes
include:
broad exceptions from competitive bidding;
requirements that either provide exemptions for privatiza-
tion projects or do not require that the low bid be selected;
H exemptions from some or all local taxes or usury laws;
authorizations to enter into take-or-pay agreements;
acknowledgements that service contracts do not consti-
tute debt;
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Ability to Secure
Reasonable Private Returns
powers granted to special authorities to issue debt; and
authorizations to assess service charges and to pledge them
and other revenues to payment of debt obligations.
The private sector must be able to secure reasonable returns in
order to ensure the success of partnership arrangements. Proper
prices for water, wastewater treatment, and solid waste services
can help attract private equity seeking reasonable returns on
investment.
By setting prices at their full economic costs and committing
environmental revenues to the provision of their respective serv-
ices, communities can help ensure competitive financing, attract
private participation, encourage efficient use of resources, and
increase public awareness concerning the true value of environ-
mental services. Proper rates for environmental services include
premiums for capital depreciation and adequate revenues to
support the lowest-cost public debt. This may include funding a
reserve account for capital improvements in future years.
Regionalization Willingness of the community to work together with other commu-
nities in providing environmental services, e.g., regionalization,
can lead to the success of many types of partnerships. As stated
above, the private sector must have the expectation of receiving an
adequate return on their investment before it is feasible for them to
provide environmental services to a community. This may not be
possible in small communities which have a limited revenue base.
However, if several communities join together, that is, they region-
alize the provision of environmental services, then large scale
projects can become economically feasible.
For example, the towns of Millbury, Massachusetts and Bristol,
Connecticut were able to construct resource recovery facilities by
joining together with other communities in a regional effort to solve
their solid waste problems. In both cases, the agreements were
worked out with a private company to serve the entire region.
Without regional cooperation, the development of the resource
recovery facility would not have been possible.
Communication and
Public Support
Community support, public education, and communication are
also critical to the success of partnerships. For example, in Mount
Vernon, Illinois, the mayor insisted that negotiations with the
private partner be open to the public and that the public be kept
informed. As a result, the community supported private sector
involvement in the project.
Public support and education were also instrumental in Lee County,
Alabama. The private company established a citizen's committee
to encourage communication with the public. During the process
of siting the landfill, the citizen's committee helped mitigate public
concern about the landfill.
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Equitable Allocation
of Risk
Another factor in the success of partnerships is agreement on the
allocation of risks. The risks involved in providing environmental
services can make or break an investment decision.
The process of allocating risk among all of the parties to a
transaction can be the most time-consuming element of a partner-
ship negotiation. It is not infrequent that once the real risks are fully
assigned, investment opportunities appear less attractive than
they originally did. Where this happens, the partners must revisit
the question of risk sharing and recalculate ways to adequately
distribute risk on both the public and private sides of the transac-
tion.
Most public-private partnerships in resource recovery systems find
a turnkey arrangement a comfortable way to balance the risks of
new technologies with long term demand for services. For ex-
ample, in Huntsville, Alabama the private partner assured that the
plant would be built on time and would meet or exceed certain
performance standards. The public partner provided most or all of
the financing and assured that all solid waste within the jurisdiction
would flow to the new facility.
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CHAPTER III
SOLID WASTE MANAGEMENT
CASE STUDIES
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CHAPTER
SOLID WASTE MANAGEMENT
CASE STUDIES
A. Private Involvement
in Providing Solid Waste
Management Services
Contract Services
Landfills
Recycling and
Resource Recovery
Americans produce about 160 million tons of municipal solid waste
each year, 3.5 pounds a day for each person. Experts estimate that
the amount of waste produced will increase by 20 percent by the
turn of the century. Eighty percent of the nation's solid waste is
currently sent to landfills, but one-third of them will reach capacity
within 5 years. Opposition to siting new landfills and rising costs of
land disposal have increased community interest in other alterna-
tives such as recycling, composting, and resource recovery (incin-
eration and co-generation of electricity).
Contract services are common for solid waste collection and
disposal. Today, over 80 percent of the nation's garbage is
collected by private companies, either under contract to govern-
ments or working directly for residents. In recent years, private
companies have expanded their role in solid waste management
to meet the new recycling and resource recovery needs that have
emerged as America's landfills reach capacity.
Private companies are involved in providing new landfills as well.
However, many landfills rely on large scale operation to balance an
adequate return and low fees. In the case of Lee County, for
example, unit costs of disposal were kept low because they could
accept waste from an adjacent state. As more states restrict the
movement of solid waste across borders, private interest in provid-
ing landfills could diminish.
Recycling and resource recovery are well-suited to private involve-
ment because of the potential profits from the sale of energy or
products from processed waste. Important benefits to local gov-
ernments include the access to sophisticated technical expertise
and the potential for attracting private equity with private company
involvement. The Seattle case demonstrates how one city worked
with two private partners to reduce its residential waste stream by
12 percent. Avoided disposal costs should reach $20 million over
a 20 year period. Four different case studies of public-private part-
nerships in resource recoveryBristol, Hillsborough County,
Huntsville, and Millburydemonstrate the attractiveness of this
type of arrangement.
Solid waste composting is another example of recycling that is
amenable to private involvement. In Saint Cloud, a private com-
pany owns and operates a co-composting facility (a mixture of solid
waste and sewage sludge) under an informal merchant agreement
with three counties in the area. A local market for the compost has
proven profitable to the private company and the volume of waste
going to landfills is expected to decrease by 15 to 20 percent.
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Rail Transportation An interesting new area for private involvement in solid waste man-
agement is rail transportation of waste from point of generation to
point of disposal as exemplified in the case study of Stamford, Con-
necticut. While this alternative faces political hurdles in the states,
long-distance rail transport of waste may become more acceptable
as disposal sites are sited farther from metropolitan regions.
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B. Case Studies of Public-Private Partnerships for Solid Waste
SUMMARY CHART OF SOLID WASTE CASE STUDIES
TYPE OF PARTNERSHIP
POPULATION
LOCATION
Merchant Facility
Landfill
Privatization
Resource Recovery Facility
Turnkey Contract
Resource Recovery Facility
Contract Services
Rail-Haul Incinerator Ash
Turnkey Contract
Resource Recovery Facility
Merchant Facility
Solid Waste Composting Plant
Merchant Facility
Solid Waste Composting Plant
Contract Services
Curbside Recycling Program
80,800
165,430
62,410
109,370
825,411
11,500
181,570
491,800
Lee County, AL
Huntsville, AL
Bristol, CT
Stamford, CT
Hillsborough County, FL
Millbury, MA
St. Cloud, MN
Seattle, WA
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SOLID WASTE
Merchant Facility
LANDFILL
LEE COUNTY, ALABAMA
Lee County,
Alabama
A private company sited, constructed, operates, and owns
a landfill in Lee County, Alabama
The company has separate agreements to accept waste
from public and private customers in a multi-county area
Because of the large volume of waste disposed at the
landfill, the company provides disposal services at low per-
unit costs
SUMMARY
In Alabama, counties are responsible for managing solid waste
disposal. Lee County has a dumpster system in its unincorporated area
and previously contracted with the City of Opelika to dispose of the
county's solid waste in Opelika's landfill.
When the municipal landfill began to reach capacity and disposal
costs increased, the county investigated alternatives to meet its future
waste disposal needs. A private company, Waste Away, Inc., proposed
to site and build a new landfill in the county. The company selected and
purchased the site, financed, and built the new privately-owned landfill. In
Lee County, the landfill's customers are the county, the City of Auburn,
the City of Opelika, Auburn University, and several large industries. The
landfill also serves customers in five other counties in Alabama as well as
three counties in Georgia.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner
Private Partner (owner)
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Lee County, Alabama
Waste Away, Inc.
80,800(1986)
$11,655(1979)
County Commissioners
November 1984
November 1985
$4 million
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Citizens opposed siting an
incinerator
Another municipal-owned
landfill was opposed
County needed expertise of
private partner
A solid waste authority established in the early 1980's
studied the feasibility of an incinerator. Because local citizens
opposed an incinerator and the authority decided an incinerator
was too costly, the authority was disbanded. The City of
Opelika then attempted to site a new landfill, but decided
against it after encountering strong citizen opposition.
Because of a state law requiring counties to manage
solid waste disposal, the county assumed responsibility for
solving the problem. However, the county did not have the
expertise to build a landfill and wanted to avoid the political
problems of siting a landfill. Waste Away, Inc. proposed to
permit and build a landfill in Lee County, and purchased an
acceptable site for the landfill. The Lee County Commission
approved the site and provided support when citizen protests
occurred.
WHAT WERE THE FINANCING
ARRANGEMENTS?
Private loan of $4 million
financed the project
The company financed construction of the landfill with
private financing. Based on its credit, Waste Away obtained a
$4 million bank loan.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
Company has a separate
agreementwith each customer
Lee County has a 3-year
agreement with Waste Away to
dispose of the county's waste
Waste Away has a separate agreement with each of its
customers. The company uses two types of agreements,
disposal agreements and franchise agreements. With a dis-
posal agreement, the customer collects and hauls waste and
the company disposes of the waste at the landfill. With a
franchise agreement, the company collects, hauls, and dis-
poses of waste at the landfill.
The Lee County Commission has a 3-year disposal
agreement with Waste Away. The agreement specifies a per-
ton tipping fee and outlines the process for instituting fee
increases. The company agreed to a lower tipping fee for Lee
County. In 1988, the tipping fee for Lee County was $11 perton
compared to the standard tipping fee of $16 per ton.
The county has a 3-year agreement with the company
because state law prohibits local governments from entering
into contracts for more than 3 years.
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
Lee County Commission
Approve the site for the landfill
Pay a per-ton tipping fee for waste disposed at the
landfill
Waste Away, Inc.
Find a site and purchase land for the landfill
Build, operate, and own the landfill
Secure a separate agreement with each govern-
mental and industrial customer
Secure the environmental permits
Comply with environmental permit requirements
Secure performance bonds and insurance
HOW WAS THE PROJECT
IMPLEMENTED?
The company established a
citizen's committee
The company established a citizen's committee to en-
courage communication with the public. During the process of
sitingthe landfill, the citizen's committee helped mitigate public
concern about the landfill. Through meetings with company
officials and site visits, the committee has input into operation
of the privately-owned landfill.
WHY WAS THE PROJECT
SUCCESSFUL?
Private company has technical
expertise
Economies of scale reduce
tipping fees
An important factor in the success of the project is that
Waste Away has the technical expertise to build and manage
a large landfill. Another factor is that the service area for the
landfill has grown to a multi-county area. As a result of the large
volume of waste, per-unit disposal costs have remained low
compared to other landfills in the state. In 1988, Waste Away
charged the county a tipping fee of $11 per ton, which is lower
than the county's previous disposal costs at the municipal
landfill. In 1984, the county's tipping fee at the municipal landfill
was $14 per ton and Opelika had notified the county that its
tipping fee would increase to $16 per ton in 1985.
22
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LESSONS LEARNED
Siting problems can be
reduced if the public agency is
not responsiblefor choosing
site, only approval
There is atrade-off between
high volumes of waste
reducing cost and reducing the
life of the landfill
Local governments can encounter serious political
difficulties siting landfills due to citizen opposition. In Lee
County, after the company conducted the necessary environ-
mental tests and purchased a site, the county commission
only had to approve the site. Citizen protests still occurred, but
by approving the site chosen by the company rather than
choosing a site itself, the commission encountered fewer po-
litical problems.
The company provides economical disposal serv-
ices to its customers because of the large volume of waste
disposed at the landfill. However, citizens in Lee County have
become concerned that by expanding to serve more custom-
ers, the company will reduce the life of the landfill.
CONTACT
Hal Smith, Probate Judge
and Chairman of Lee County Commission
P.O. Box 666
Opelika, AL 36802
(205) 745-9761
23
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SOLID WASTE
Turnkey Contract
Huntsville, Alabama
RESOURCE RECOVERY FACILFTY
(MASS-BURN INCINERATOR)
HUNTSVILLE, ALABAMA
The Solid Waste Disposal Authority of Huntsville signed a
turnkey contract with Ogden Martin Systems, Inc. to
design, construct, and operate a mass-burn incinerator
owned by the authority
" Steam generated from the resource recovery facility will
be sold to the U.S. Army's Redstone Arsenal
Taxable bonds sold to finance the facility will be repaid
from garbage tipping fees and the sale of steam
The private partner accepts responsiblity for performance
and guarantees compliance with environmental permit
requirements
SUMMARY
Without enough acceptable land to site a large landfill, the City of
Huntsville decided to develop a resource recovery facility to reduce the
volume of waste to be-land disposed. Huntsville created a solid waste
disposal authority to implement a solid waste management plan and issue
bonds. The authority entered into a turnkey contract with Ogden Martin
Systems of Huntsville, Inc. to design, construct, and operate a mass-burn
incinerator. When operational, the facility will burn garbage and sewage
sludge, producing steam to be sold to the U.S. Army's Redstone Arsenal.
The Arsenal will be the sole purchaser of the facility's steam.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner (owner)
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Huntsville, Alabama
Ogden Martin Systems of Huntsville,
Inc.
165,430 (1987)
$27,182 (1986)
City Council/Strong Mayor
September 1988
Scheduled October 1990
$74.4 million
24
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Initial negotiations with U.S. Army to
jointly own the facility failed
A private partner was chosen to provide
specialized technical expertise
Public ownership was preferred to allow
greater control over facility design and
performance
Early on, planners envisioned that the city and Army
would jointly own the facility, but higher Army officials rejected
this plan. The city created the Solid Waste Disposal Authority in
February 1985 to issue bonds and select a private partner to
provide turnkey design, construction, and operation of the
resource recovery facility. A private company was chosen to
provide the specialized technical expertise required to build and
operate a mass-burn facility.
The Solid Waste Disposal Authority decided that public
ownership of the facility offered many advantages over private
ownership, including greater control over facility design and
performance.
WHAT WERE THE FINANCING
ARRANGEMENTS?
$112 million taxable bonds were issued
by public partner
Bonds are backed by tipping fees and
sale of steam generated
The Solid Waste Disposal Authority issued fixed-rate
taxable bonds of $112 million to finance the facility and associ-
ated roadway improvements. Taxable bonds were sold be-
cause the 1986 Tax Reform Act prohibits tax-exempt status
when bonds benefit federal agencies, in this case, the U.S.
Army. These 25-year bonds are backed by garbage tipping fees
and revenues from the sale of steam generated. The bonds
were insured, resulting in a bond rating of AAA. No private
equity was involved in the financing arrangements.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
A contract was signed to design and
construct the facility + 5-year operation
(option for four 5-year renewals)
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
In a competitively negotiated procurement process,
the Solid Waste Disposal Authority issued a Request for
Proposal (RFP) in 1988 and Ogden Martin Systems, Inc. was
selected to design, construct, and operate the facility. A 5-year
service contract was signed with Ogden Martin to operate the
facility, with the option of four 5-year renewals at the discretion
of the Authority.
City of Huntsville
Create the Solid Waste Disposal Authority
Solid Waste Disposal Authority of Huntsville, Alabama
Lease the site for the facility from Redstone Arsenal
Sell bonds to finance the facility
Secure environmental permits
Contract with Redstone Arsenal to purchase steam
generated by the facility
Operate existing landfill for disposal of process
residuals
25
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES? (Continued)
HOW WAS THE PROJECT
IMPLEMENTED?
DOE funded study of options
The city created the Solid Waste
Disposal Authority
Ogden Martin Systems of Huntsville, Inc.
Design, construct, and operate the resource recovery
facility
Comply with performance guarantees
Comply with environmental permit requirements
A U.S. Department of Energy grant funded a study of
waste-to-energy options to solve the city's landfill capacity
problem. A low debt limit set by the state prevented cities from
financing large resource recovery facilities. However, a state
law enacted in 1980 enabled cities to create solid waste disposal
authorities that can issue bonds and contract for the operation
of solid waste disposal facilities. In February 1985, Huntsville
created the Solid Waste Disposal Authority to issue bonds and
contract with a private partner to build and operate the facility.
WHY WAS THE PROJECT
SUCCESSFUL?
Community involvement
Independent advisors
Local energy market
Community leaders supportedthe project and worked
together to solve problems that occurred as the project devel-
oped. In addition, a Citizen's Advisory Committee was involved
throughout the process and continues to keep the public in-
formed. Several independent consultants provided valuable
technical, legal, and financial advice. Finally, the facility was
successful because there was a local market for the gener-
ated steam.
LESSONS LEARNED
Partners must be flexible to adapt to
changing circumstances
Negotiating construction of a resource recovery facility
takestime and requires a commitment from the public partner,
private partner, and energy customer. Huntsvilie learned that
it was necessary to adapt to changes that may occur during
planning and negotiation. Initially, the city arranged to issue
tax-exempt bonds and selected a private partner under a 1984
RFP. However, the financial position of the company changed
such that it could not procure performance bonds. The
original agreement fell apart after more than two years of
negotiations. Because the 1986 Tax Reform Act imposed a
January 1, 1987 deadline to sell the bonds with tax-exempt
status, new financing had to be arranged and the RFP process
had to be repeated.
CONTACT
Eddie Coker, Director
Solid Waste Disposal Authority of Huntsville, Alabama
P. O. Box 308
Huntsville, Alabama 35804
(205) 535-4813
26
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SOLID WASTE
Privatization
RESOURCE RECOVERY FACILITY
(MASS-BURN INCINERATOR)
BRISTOL, CONNECTICUT
Bristol, Connecticut
Communities worked together to reach a privatization
arrangement with Ogden Martin to design, construct,
operate, and own a resource recovery facility
The facility was financed by tax-exempt revenue bonds
issued by the Connecticut Development Authority
Bristol receives tax revenues from the facility and fees from
10 other communities using the facility; tipping fees are
reduced by revenues from the sale of electricity generated
1 Ogden Martin completed construction of the facility under
budget and 2 months ahead of schedule
SUMMARY
Connecticut communities worked together in a regional effortto
build a resource recovery facility. Eight communities entered into a priva-
tization agreement with Ogden Martin Systems of Bristol, Inc. to build, op-
erate, and ownthe facility. Subsequently, three other communities joined.
The Connecticut Development Authority issued tax-exempt revenue bonds
to finance the project. A bond trustee, the Connecticut Bank and Trust
Company, collects and disburses revenues from the facility.
The communities formed the Bristol Resource Recovery Facility
Operating Committee (BRRFOC) to oversee operation of the facility. Par-
ticipants agreed to provide a minimum tonnage of waste each year. Their
tipping fees are offset in part by revenues from the sale of electricity to
Connecticut Light and Power.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner
Private Partner (owner)
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Eleven Connecticut communities
Ogden Martin Systems of Bristol, Inc.
62,410 (Bristol, 1988)
$19,357 (Bristol, 1979)
Semi-Strong Mayor (Bristol)
May 1984
May 1988
$66 million
27
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Private partner had experience with
sophisticated mass burn technology
Private partner was considered more
efficient
Private partner accepted performance
risks
A study was conducted by independent consultants
who selected mass-burn technology. The City of Bristol
agreed to provide a site near its landfill to build a resource
recovery facility, but was not interested in ownership. The
communities chose private ownership because they decided
that an experienced private company would be more efficient
and accept performance risk for the project. The communities
worked together to select a private partner to build, own, and
operate the resource recovery facility located in Bristol.
WHAT WERE THE FINANCING
ARRANGEMENTS?
$73 million tax-exempt revenue bonds
$2.5 million
bond redemption
$18 million private equity
The Connecticut Development Authority issued $73
million in tax-exempt revenue bonds to finance the facility. The
29-year bonds are backed by revenues from the facility and
guaranteed by Ogden Martin. Ogden Martin contributed $18
million. As the facility did not cost the full amount of the bond
issue, $2.5 million in bonds were redeemed after the facility was
completed.
Revenues from the facility are deposited in a revenue
account with the Connecticut Bank andTrust Company, which
acts as bond trustee. Ogden Martin bills the BRRFOC monthly,
which then pays the bond trustee from payments received from
the participating communities. The City of Bristol receives afee
from each community through the bond trustee.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
An RFP was issued and Ogden
Martin was chosen through com-
petitive negotiation
The City of Bristol issued an RFP, and in conjunction
with the other communities, selected Ogden Martin through
competitive negotiation. The communities signed a contract
with Ogden Martin to build and operate the facility. Through an
interlocal agreement, each of the communities agreed to pro-
vide a minimum tonnage of waste per year.
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Bristol
Sell the land for the facility to Ogden Martin
Operate a landfill for disposal of process residuals
Connecticut Development Authority
Issue bonds to finance the facility
Connecticut Bank and Trust Company
Collect and disburse revenues from the facility
28
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WHAT WAS THE DIVISION OF
RESPONSIBILrriES? (Continued)
HOW WAS THE PROJECT
IMPLEMENTED?
Bristol conducted a study to evaluate
the potential for resource recovery
State legislation authorized the
communities to issue contracts for solid
waste management
The communities created the BRRFOC
Bristol Resource Recovery Facility Operating Committee
Set policy and oversee operation of the facility
Provide a minimum tonnage of waste per year
through an interlocal agreement
Ogden Martin Systems of Bristol, Inc.
Design, construct, own, and operate the resource
recovery facility
Secure environmental permits
Comply with environmental permit requirements
Contract with Connecticut Light and Power to
purchase electricity generated
Bristol hired independent consultants to evaluate the
potential for a resource recovery facility. Independent consult-
ants assisted in selecting and negotiating with the private part-
ner.
The state passed special legislation in 1985 allowing the
communities to join together in a contractual relationship to
manage solid waste disposal. The original eight communities
worked informally to sign an agreement with Ogden Martin.
After the project started, another three communities became
involved. In September 1987, the communities agreed for-
mally to create the BRRFOC. The BRRFOC is made up of
community officials from the 11 communities and meets monthly
to oversee operation of the resource recovery facility.
WHY WAS THE PROJECT
SUCCESSFUL?
Independent consultants
Financial incentives to site facility
Citizen involvement
B State law requiring public utilities to
purchase electricity generated
Independent consultants provided valuable technical,
legal, and financial advice. Negotiating an agreement that
protects the interests of all parties involved facilitated coopera-
tion among communities. Included in the agreement are finan-
cial incentives for Bristol to locate the facility within its bounda-
ries. Bristol receives a fee from the other communities and
Ogden Martin is the second largest source of tax revenues for
the city.
Another factor contributing to the success of the proj-
ect was citizen involvement. A Citizen's Advisory Committee,
formed during construction of the facility, distributed informa-
tion to the public and helped raise support for the project.
A state law requires that public utilities purchase excess
energy from resource recovery facilities. As a result, there was
easy access to a market for the electricity generated by the
facility.
29
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LESSONS LEARNED
Regional strategies for
solid waste
management can be
successful with careful
negotiation
Local governments can work together successfully for
a regional solution to solid waste management. Careful nego-
tiation can result in an agreement that protects the interests of
each party involved and provides financial benefits to the com-
munities. Direct input by community officials kept the commu-
nities closely involved and committed to the project.
CONTACT
John Leone, Mayor
City of Bristol
1111 North Main Street
Bristol, CT 06010
(203) 584-7613
30
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SOLID WASTE
Contract Service Provision
RAIL-HAUL OF MUNICIPAL INCINERATOR ASH
STAMFORD, CONNECTICUT
Stamford, Connecticut
The City of Stamford entered into a service contract with
Interstate Bi-Modal, Inc. for long-distance transport and
disposal of municipal incinerator ash
Interstate Bi-Modal secured equipment and transportation
contracts to implement the rail-haul system and contracted
with a privately-owned landfill for disposal of the ash
Rail-haul saves the city 25-30 percent over alternative
truck transportation and nearby disposal options
SUMMARY
A lack of landfill capacity and potential sites for new landfills led
Stamford to investigate alternatives for long distance transport and
disposal of incinerator ash. Because of the distance to landfills and lower
tipping fees at more distant landfills, rail-haul was the most economical
transportation alternative.
The City of Stamford entered into a service contract with Inter-
state Bi-Modal, Inc. (IBMI) to provide long distance rail transportation and
disposal of its municipal incinerator ash. IBMI leased equipment and
contracted with other private companies to provide truck and rail transpor-
tation. IBMI also contracted with a privately-owned landfill for disposal of
the ash.
At the municipal incinerator, the ash is loaded into containers and
moved by truck to a rail terminal. The containers are moved to the
disposal site by Conrail on rail cars leased by IBMI. The containers are
then moved by truck to a landfill. Finally, the containers are returned by
rail to the Stamford facility for reloading.
31
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PARTIES INVOLVED AND
TIMEFRAME
Public Partner
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Operating Cost
Stamford, Connecticut
Interstate Bi-Modal, Inc.
109,370(1988)
$58,900 (1988, Stamford
SMSA)
City Council/Mayor
April 1988
September 1988
$2.5 million per year
WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Regional landfill would notaccept
Incinerator ash except from a regional
Incinerator
The city decided that long distance
transport and disposal should be
arranged by an experienced private
partner
Rail-haul of waste was chosen as the
least costly mode of transport for long
distances
Because the City of Stamford has its own incinerator,
they were not able to dispose of residues in the regional landfill.
Use of the landfill is limited to cities that send their waste to the
regional incinerator. The state had closed many landfills in
Connecticut due to more stringent environmental regulations,
and without an environmentally acceptable landfill site in the
city, Stamford was forced to arrange long distance transporta-
tion and disposal. Rail-haul was the least costly mode of
transportation as a result of the long distance involved. Stamford
chose a private partner because they were able to assemble
the range of companies and equipment necessary to provide
the service.
WHAT WERE THE FINANCING
ARRANGEMENTS?
M Private partner arranged rail-haul system
so city avoided up-front costs
« The city pays per-ton fee to the private
partner
The city's payment is guaranteed by a
letter of credit and backup funds in a
special account
The city avoided up-front costs by contracting with
IBMI to assemble the necessary partners for the rail-haul
system. The city pays a per-ton fee to IBMI for transport and
disposal of incinerator ash. Payment is due immediately after
delivery of the incinerator ash to the disposal site. IBMI re-
quired the city to secure a $300,000 letter of credit and deposit
the money in a bank account to guarantee timely payment of
IBMI. The letter of credit provides that the bank will pay IBMI
from that account if the city cannot pay on time.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
An RFP was Issued in a competitive
negotiation process
The city signed a 1 -year service
contract with IBMI with an option
for yearly extensions
In competitive negotiation, the City of Stamford issued
an RFP and selected IBMI to transport and dispose of its
incinerator ash. The city and IBMI signed a 1-year service
contract with an option for yearly extensions. The city required
IBMI to secure a $1 million performance bond.
32
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Stamford
Own and operate the municipal incinerator
Contract with an independent laboratory to test the
incinerator ash
Provide for alternative disposal of incinerator ash
that does not pass test requirements
Load ash into containers at the incinerator
Interstate Bi-Modal, Inc.
Contract for truck transportation of the containers,
both in Stamford and at the disposal site
Own and maintain a short-line railroad for rail
transportation from a transfer station to the IBMI rail
terminal
Contract with Conrail for long distance rail
transportation
Supply containers and container-handling equipment
Comply with environmental regulations for
transportation of municipal incinerator ash
Contract with a privately-owned landfill at the
disposal site
HOW WAS THE PROJECT
IMPLEMENTED?
The project was managed by the Public
Works Department
The director of capital projects of the Stamford Public
Works Department supported the rail-haul option and worked
to gain the support of city officials. Meetings were organized to
investigate rail-haul options.
WHY WAS THE PROJECT
SUCCESSFUL?
Rail-haul saves the city 25-30 percent
"Dedicated transportation equipment"
lowers health and environmental risks
The rail-haul system saves the city 25-30 percent over
alternative truck transportation and local disposal options.
More economical long distance transportation by rail and
lower tipping fees at the disposal site help to lower costs.
Transporting incineratorash in "dedicated transporta-
tion equipment" lowers risk to public health and the environ-
ment. Containers and rail cars are used exclusively for solid
waste, as opposed to using the same equipment to transport
different materials on the return trip. Use of dedicated transpor-
tation equipment for solid waste is required by Conrail.
33
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LESSONS LEARNED
Rail-haul less costly with long distance
transport of waste
Trucking waste to the rail terminal is
expensive
Without access to a landfill, transportation costs be-
came the most significant factor to consider in finding a solu-
tion to Stamford's solid waste disposal problems. Rail was
more economical than truck transportation for the long
distance haul required.
The city could lower its disposal costs further if the ash
did not have to be trucked to the rail terminal. Attempts to work
with the railroad to provide rail service directly to the municipal
incinerator have not yet been successful.
CONTACT
Norman Liu, Director of Capital Projects
Department of Public Works
City of Stamford
888 Washington Blvd.
Stamford, CT 06904-2152
(203) 977-4138
34
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SOLID WASTE
Turnkey Contract
RESOURCE RECOVERY FACILITY
(MASS-BURN INCINERATOR)
HILLSBOROUGH COUNTY, FLORIDA
Hillsborough County,
Florida
.***
Hillsborough County entered into a turnkey arrangement with a
private partner for the design, construction, and operation of a
resource recovery facility owned by the county
Tax-exempt bonds sold to finance the facility are backed by
revenues from the county-wide solid waste disposal system
The sale of electricity generated by the facility to Tampa Electric
Company provides revenues to the county
SUMMARY
Prompted by a state law requiring counties to prepare resource
recovery management plans and growing awareness of problems associ-
ated with solid waste landfills, Hillsborough County instituted a compre-
hensive solid waste disposal system. The county entered into a turnkey
contract with Ogden Martin Systems, Inc. to design, construct, and
operate a resource recovery facility owned by the county. The county
agreed to guarantee delivery of a minimum tonnage of solid waste each
year and to develop a new landfill for disposal of residuals. Ogden Martin
agreed to comply with a set of performance guarantees for facility
operation.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner (owner)
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Hillsborough County, Florida
Ogden Martin Systems of
Hillsborough, Inc.
825,411 (1988)
$14,868 (1979)
County Commissioners
January 1985
June 1987
$108 million
35
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Private partner had
specialized technical
expertise in mass-burn
technology
WHAT WERE THE FINANCING
ARRANGEMENTS?
$144 million Industrial
Revenue Bonds
$3.6 million equity from the
county
An interlocal committee was formed between Hillsbor-
ough County and the three incorporated cities in the county
(Tampa, Plant City and Temple Terrace) to investigate solid
waste disposal options. They chose mass-burn technology as
the best resource recovery alternative. Tampa and Hillsbor-
ough County separately developed plans for their own re-
source recovery facilities.
Because the technology required sophisticated techni-
cal expertise, the county decided to contract the design, con-
struction, and operation to a private partner. However, the
county preferred public rather than private ownership of the
facility to retain greater control over design and performance.
The county issued $144 million in tax-exempt industrial
revenue bondsto finance the resource recovery facility and the
landfill. The AAA-rated bonds are backed by revenues from the
entire county solid waste system. Hillsborough County contrib-
uted another $3.6 million. No private equity was involved.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
I Ogden Martin agreed to
design and construct facility
+ operation for 20 years
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
As part of a competitive negotiation process, the county
issued an RFPforthe resource recovery facility. Ogden Martin
Systems of Hillsborough, Inc. was selected to design and con-
struct the facility. A separate service agreement was reached
with Ogden Martin to operate and maintain the facility for 20
years.
Hillsborough County
Acquire the site for the facility
Sell bonds to finance the facility
Guarantee that a minimum tonnage of solid waste is
delivered to the facility each year
Secure environmental permits
Acquire the site, design, and construct the landfill to
accept process residue from the facility, to serve as a
backup disposal site, and for disposal of solid waste
that cannot be processed at the facility
* Contract with Waste Management, Inc. to operate the
landfill
Contract with Tampa Electric Company to purchase
the electricity generated by the facility
36
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES? (Continued)
HOW WAS THE PROJECT
IMPLEMENTED?
EPA grant helped fund
studies of options
Special state legislation was
passed
New public partners became
involved
WHY WAS THE PROJECT
SUCCESSFUL?
Independent advisors
Contract performance
guarantees
Ogden Martin Systems of Hillsborough, Inc.
Design, construct, and operate the resource recovery
facility in accordance with contract specifications
Comply with environmental permit requirements
Tampa Electric Company (TECO)
» Design, construct, and operate electricity
interconnection facilities required to transmit
electricity generated by the facility to TECO
A grant from the U.S. Environmental Protection Agency
and matching funds from the four local governments in Hillsbor-
ough County paid for studies conducted by the interlocal
committee to evaluate solid waste disposal options.
The state passed special legislation in 1983 granting
Hillsborough County contractual powers to finance and operate
the resource recovery facility. The legislation also requires
that all persons in the unincorporated area of the county use
the county's solid waste disposal system. As a result, the
county can guarantee delivery of a minimum tonnage of solid
waste to the facility each year.
Planning forthe resource recovery facility initially con-
cerned only the unincorporated area of Hillsborough County.
Later, during construction of the facility, the three incorporated
cities in Hillsborough County requested use of the facility for
waste disposal. Plant City and Temple Terrace now send all
their solid waste to the facility, and the City of Tampa sends
waste in excess of its facility's capacity.
The county selected a private partner with the technical
expertise to build and operate a resource recovery facility. In
addition, the county hired an independent engineering consult-
ing firm to evaluate the technical and financial feasibility of the
project, help choose the contractor, and assist with contract
negotiations. The consultant also inspected and monitored
compliance with the contract during construction of the facility.
The contract provided incentives to Ogden Martin to
maximize the efficiency of the resource recovery facility. Per-
formance guarantees were established for both construction
and operation of the facility along with penalties if Ogden
Martin failed to meet their performance guarantees. Bonus
incentives to the contractor for early completion led to opera-
tion 7 months ahead of the contract date.
37
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LESSONS LEARNED
Differences in local
preferences should be
addressed early in the
planning for regional facilities
Hillsborough County's experience shows that careful
negotiation between public and private partners can result in an
agreement that is profitable to both parties. But, it may be
difficult to reach an agreement between several governments
because of political problems. Hillsborough County and the
City of Tampa initially attempted to work jointly but could not
reach an agreement on their respective roles, and each built a
separate facility.
CONTACT
Thomas G. Smith, Executive Manager
Department of Solid Waste
Hillsborough County, Florida
P.O. Box1110
Tampa, FL 33601
(813)272-6674
38
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SOLID WASTE
Merchant Facility
RESOURCE RECOVERY FACILITY
(MASS-BURN INCINERATOR)
MILLBURY, MASSACHUSETTS
Millbury, Massachusetts
In a merchant agreement, communities in the Worcester,
Massachusetts area accepted Wheelabrator's offer to build,
own, and operate a resource recovery facility
" The Town of Millbury offered to site the merchant facility, and
in exchange, Millbury receives free tipping for 20 years for a
specified amount of waste and receives "host community
fees" from other towns that use the facility
Reduced tax benefits of ownership after the 1986 Tax Reform
Act led Wheelabrator to sell the facility, but they continue
operation, leasing the facility from the current private owner
SUMMARY
Communities in the Worcester, Massachusetts area formed a
committee to develop a regional solution to solid waste management.
When Wheelabrator offered to own, finance, build, and operate a resource
recovery facility, the Town of Millbury offered to site the facility within its
boundaries and lease the land to Wheelabrator. In exchange, Millbury
enjoys free tipping from Wheelabrator for 20 years for a specified amount
of waste and receives "host community fees" each month from the 35
other communities providing waste to the facility. Wheelabrator sold the
facility to the Ford Motor Credit Company after tax benefits of ownership
were reduced by the 1986 Tax Reform Act, but Wheelabrator continues
to operate it, leasing the facility from Ford.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner
Private Partner (owner)
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Millbury, Massachusetts
Wheelabrator Millbury, Inc.
11,500 (1985)
$18,634(1979)
Board of Selectmen
September 1985
September 1987
$140 million
39
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Wheelabrator Identified
market potential in the area
A regional committee
pressured to find a solution
Wheelabrator offered to meet
needs quickly
WHAT WERE THE FINANCING
ARRANGEMENTS?
Private debt financed
purchase of land and facility
construction
In a sale lease-back
transaction, Millbury bought
land and leased it back to
Wheelabrator
In a leveraged lease
transaction, Wheelabrator
sold the facility to another
company because tax
benefits of ownership were
reduced in the 1986 Tax
Reform Act
Wheelabrator's market studies identified the Worcester,
Massachusetts area as having unmet solid waste disposal
needs and an energy market. They approached the Central
Massachusetts Resource Recovery Committee and offered to
build and operate a resource recovery facility.
The committee was interested in finding a private partner
to hasten development of the project. While the committee had
planned to issue an RFP, negotiations with the State to
purchase the site were moving slowly. Landfills were approaching
capacity in several towns and the City of Worcester was under
astateorderto close its landfill. They accepted Wheelabrator's
offer because it corresponded with the area's needs and could
be implemented quickly.
Wheelabrator obtained private financing for purchase
of the land and construction of the facility. Taxable private
financing was preferred to take advantage of the investment tax
credit.
In order to increase their control, Millbury purchased
the land for the facility from Wheelabrator and then leased it
back to Wheelabrator (sale lease-back). By state law, bonds to
purchase land must be taxable so the Millbury Industrial Devel-
opment Finance Authority sold $325,000 of taxable industrial
revenue bonds to purchase the land. The non-rated bonds are
backed by revenues from the facility.
The 1986 Tax Reform Act reduced the tax benefits of
ownership for Wheelabrator, while ownership offered tax advan-
tages for Ford Motor Credit Company. Even after tax reform,
owners of waste-to-energy facilities can take advantage of
certain tax provisions, such as shorter depreciation schedules
relative to other types of investments, making them an attractive
investment for companies with large amounts of capital to
invest. As a result, Wheelabrator undertook a leveraged lease
transaction in which they sold the facility to the Ford Motor
Credit Company and then leased the facility back.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
The contract was awarded
through a noncompetitive bid
process
Service agreements were
signed between Wheelabrator
and each participating
community
Millbury would receive free
tipping
When Wheelabrator offered to build a privately-owned
and operated facility, the committee agreed to their offer through
a non-competitive bid process. It was necessary to secure
approval of the noncompetitive bid by the Massachusetts
Inspector General.
The regional committee developed a service agree-
ment that required communities to provide minimum tonnages
of waste each year and contained performance guarantees
from Wheelabrator. Each participating community signed a
separate service agreement. The service agreement between
Wheelabrator and Millbury providesthe town free tipping for up
to 11,315 tons of solid waste per year. Beyond that amount,
Millbury will pay Wheelabrators current per-ton rate.
40
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
Town of Millbury
Create the Millbury Industrial Development Finance
Authority to issue bonds
Purchase land for the facility
Lease land for the facility to Wheelabrator
Wheelabrator Millbury, Inc.
Build and operate a resource recovery facility
Secure a separate service agreement with each
community, including a guarantee from each
community to provide a minimum tonnage of waste
per year
Comply with performance guarantees in service
agreements
Secure environmental permits
Comply with environmental permit requirements
» Contract with New England Electric to purchase
electricity generated by the facility
Contract with privately-owned ash monofill for
disposal of process residue from facility
Pay "host community fees" to Millbury from tipping
fees of other communities
HOW WAS THE PROJECT
IMPLEMENTED?
A regional committee was
formed to develop a strategy
for solid waste management
Independent technical and
financial advisors were hired
to assist the regional
committee
State laws facilitated the
agreement
The regional committee received a state grant to de-
velop a strategy for solid waste management for the area.
Independent consultants provided valuable technical and finan-
cial advice in their negotiations with Wheelabrator.
Two state laws facilitated the agreement; a state statute
enabling municipalities to create industrial development finance
authorities to issue bonds and a 1981 state law that requires
payment of a "host community fee" for waste processed through
a resource recovery plant. Communities delivering waste to a
facility must pay a per-ton rate to the community in which the
facility is located. The additional cost of "host community fees"
and free tipping for Millbury are built into the tipping fees of the
other participating communities.
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WHY WAS THE PROJECT
SUCCESSFUL?
Incentives to Millbury to site
the facility
Favorable market conditions
for Wheelabrator
Free tipping and the receipt of "host community fees"
were important incentives for Millbury to agree to sitethe facility
within its boundaries. For Wheelabrator, the market was favor-
able and private control allowed the project to be completed
ahead of schedule and below budget.
LESSONS LEARNED
Financial incentives to the
host community are
important
Careful estimation of
solid waste generated
can lead to more
beneficial agreement
for community
Financial incentives to communities to locate a re-
source recovery facility can increase community support for
siting regional projects. Wheelabrator first offered to build and
operate a resource recovery facility in the City of Worcester,
Massachusetts. A citizen's group successfully opposed the
Worcester location.
Millbury discovered that a community must have a
good estimate of the amount of solid waste it generates before
entering into an agreement with a privately-owned resource
recovery facility. Wheelabrator requires each community to pay
for a minimum tonnage of solid waste per year and also sets a
maximum tonnage beyond which thefacility could deny waste.
Millbury's estimation was low and the town now must be careful
not to exceed its negotiated amount for free tipping.
CONTACT
Earl W. Chase, Jr., Administrator
Town Hall
127 Elm Street
Millbury, MA 01527
(508)865-4710
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SOLID WASTE
Merchant Facility
SOLID WASTE COMPOSTING PLANT
ST. CLOUD, MINNESOTA
A private company bought an existing solid waste
composting facility and upgraded it to accept both solid
waste and sewage sludge from a three-county area
(Stearns, Benton, and Sherburne counties)
In an informal merchant agreement, the counties provide
waste to the composting facility
The composting facility is expected to reduce the volume of
waste going to landfills by 15 to 20 percent
St. Cloud, Minnesota
SUMMARY
A private company (RECOMP, Inc.) saw an opportunity to make
afailing composting plant profitable by upgrading it for co-composting (a
mixture of solid waste and 20-25 percent sewage sludge). They fi-
nanced redesign and upgrading with private debt and formed a partner-
ship with the private owners of an adjacent waste transfer facility. The
company is now called the St. Cloud Transfer and Recycling Corpora-
tion.
The Tri-County Solid Waste Management Commission included
a commitment to provide waste to the composting facility in the region's
solid waste management plan. The company has an informal merchant
agreement with the Tri-County Solid Waste Management Commission to
process waste collected in the area.
Recently, the City of St. Cloud issued industrial revenue bonds
to finance expansion of the facility. The bond issue was carefully
structured so that it does not add to the city's debt or involve any financial
responsibility forthe city.
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PARTIES INVOLVED AND
TIMEFRAME
Public Partner
Private Partner (owner)
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Capital Cost of Facility
Upgrade and Redesign
Tri-County Solid Waste
Management Commission
St. Cloud Transfer and Re-
cycling Corporation and
RECOMP.Inc.
181,570(1987)
$17,000(1979)
County Commissioners
October 1987 (upgrade and
redesign)
January 1989
$4 million
WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
The private partner demonstrated an
ability to operatethe composting
facility efficiently
A private company upgraded the region's composting
facility and offered to accept solid waste from an adjacent
transfer station for composting. After the company demon-
strated its reliability, the regional commission incorporated a
commitment to composting in its solid waste management plan
as an alternative to land disposal and incineration.
WHAT WERE THE FINANCING
ARRANGEMENTS?
" Original construction and upgrading
was privately financed
Tax-exempt industrial revenue bonds
for plant expansion do not entail any
financial responsibility forthe city
The original private ownerfinanced construction of the
composting facility with private debt. RECOMP, Inc., the sec-
ond owner, privately financed the redesign and upgrade of the
facility.
Recently, the City of StCloud issued $4 million of tax-
exempt industrial revenue bonds to finance expansion of the
composting facility and adjacent transfer station. The bonds
are backed by revenues from the project and do not involve any
financial responsibility for the city. St. Cloud Transfer and
Recycling Corporation is responsible for payment of the debt.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
The Commission entered into a
10-year service contract with St. Cloud
Transfer and Recycling Corporation to
accept and process solid waste
The Tri-County Solid Waste Management Commis-
sion has a 10-year contract with St. Cloud Transfer and
Recycling Corporation that requires the transfer station to
accept all residential solid waste from the City of St. Cloud and
three surrounding counties. The contract requires the transfer
station to send 150 tons of solid waste per day to a waste-to-
energy facility and send the remainder to the landfill or the
composting facility.
The City of St. Cloud also has an agreement with St.
Cloud Transfer and Recycling Corporation to provide sewage
sludgefor co-composting.
44
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
Tri-County Solid Waste Management Commission
Contract with St. Cloud Transfer and Recycling
Corporation to accept solid waste and transfer waste
to the facilities in the solid waste system
St. Cloud Transfer and Recycling Corporation
Own the transfer station and the composting facility
City of St. Cloud
Contract with the St. Cloud Transfer and Recycling
Corporation to supply sewage sludge for co-
composting
RECOMP, Inc.
Operate the transfer station
Operate the composting facility
Market the compost in compliance with state
environmental regulations
HOW WAS THE PROJECT
IMPLEMENTED?
A state agency encouraged
composting
The private party upgraded the plant
and demonstrated its reliability
TheCommissionagreedtoinclude
composting in their solid waste
management plan
The counties agreed to send waste to
the composting facility
WHY WAS THE PROJECT
SUCCESSFUL?
The improved compost was more
marketable
Operation of compostingfacility in
conjunction with transferstation
provided financial stability
A state agency encouraged solid waste composting as
an alternative for solid waste management. New state solid
waste regulations allow for land application of solid waste
compost.
RECOMP, Inc. saw an opportunity to make the existing
compostingfacility profitable by upgrading the plant to handle
co-composting. After the company gained the support of the
solid waste commission, the commission included a commit-
ment to composting in the regional solid waste management
plan.
Each of the three counties passed a "designation ordi-
nance," effective July 1,1989, requiring all solid waste haulers
to deliver solid waste to the transfer station. The transfer station
agreed to supply waste to the composting facility.
RECOMP, Inc. redesigned the composting facility to
produce an improved compost. As a result, RECOMP was in
a better marketing position than the previous owner and could
offer composting as a cost-competitive alternative for solid
waste disposal. Because the composting facility is owned and
operated in conjunction with the transfer station, it receives
revenues from tipping fees and does not have to rely entirely on
marketing compost or recyclables.
45
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LESSONS LEARNED
Because composting technology is
new, public acceptance may be
difficult
Regulatory requirements for land
application of compost limit potential
markets
Many uncertainties are associated with developing a
new technology such as solid waste composting. Initially, the
composting facility in St. Cloud experienced difficulties devel-
oping a market for its compost. Changes in the composting
technology were necessary to produce a product that was
acceptable to the public. The facility now markets the co-
composted product to Christmas tree farms, with plans to
market it in bulk for highway landscaping and distribute it in
bag form for horticulture.
Environmental regulations restrictthe land application
of compost. Changing to co-composting resulted in a better
compost, but required complying with the more restrictive state
regulations for land application of sewage sludge in addition to
the regulations for land application of solid waste compost The
company initiated discussions with the state regulatory agency
to develop a marketing plan that would satisfy regulatory re-
quirements.
CONTACT
Jerry Johnson, Coordinator
Tri-County Solid Waste Management Commission
P.O. Box 615
St. Cloud, MN 56301
(612) 259-3610
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SOLID WASTE
Contract Service Provision
CURBSIDE RECYCLING PROGRAM
SEATTLE, WASHINGTON
Seattle, Washington
Seattle contracted out city-wide curbside recycling
service to private partners
Garbage collection charges are structured to
encourage waste reduction and recycling, with fees
based on the number of cans picked up and on the
choice of backyard or curbside service
m The city avoided upfront costs, as the private partners
purchased collection and processing equipment; the
city's avoided cost of solid waste collection and
disposal slightly outweigh the program costs over a
twenty year period
SUMMARY
When Seattle's landfill was closed, the city contracted to use the
county's landfill. But Seattle had to pay a tipping fee that increased with
their entry into the system from $11/ton to $31.50/ton, and pay $8.50 of
the tipping fee into a fund earmarked for planning future disposal systems.
Seattle had to come up with a long-term disposal solution. As a way to
reduce the volume of waste disposed in landfills, the city sought private
companies to provide curbside recycling services and selected Waste
Management, Inc. to provide the service for the northern half of the city
and Rabancoforthe southern half. With Pacific Rim port facilities handy,
contractors have easy access to strong paper markets in the Orient.
Curbside recycling has reduced the residential waste stream by 12 per-
cent in its second year of operation. Avoided disposal costs should
reach $20 million over a 20-year period just offsetting program costs over
that same period resulting in a cost effective program for the citizens of
Seattle.
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PARTIES INVOLVED AND
T1MEFRAME
Public Partner
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Contract Start Date
Total Operating Cost
Seattle, Washington
Waste Management, Inc.
(Recycle America) & Rabanco
(Recycle Seattle)
491,800(1988)
$33,000(1988)
Mayor/Council
January 1987
February 1988
$1 million annual contractor
payments and $200,000 for
promotion (1988)
WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
" Positive experience with
private solid waste collection
led to selection of a private
partnerfor recycling
Building an incineratorwas
considered but the community
preferred recycling
Traditionally, Seattle contracted with private compa-
nies for the provision of solid waste collection and disposal
services. As a result of Seattle's positive experience with
private solid waste management in the city, it was expected that
a private company would also provide recycling services.
City officials considered constructing an incinerator
but citizens raised strong opposition. They wanted the oppor-
tunity to try voluntary recycling to reduce the volume of waste
going to landfills. It was expected that public support for recy-
cling and a new rate structure, with charges based on the
number of containers collected, would minimize waste sent to
landfills.
WHAT WERE THE FINANCING
ARRANGEMENTS?
Necessary equipment was
purchased by private partners
A fee is paid to contractors
based on tons collected
Waste Management, Inc. and Rabanco purchased the
collection and processing equipment. The city pays Rabanco
$49.02 per ton of recyclables collected and shares recyclable
revenues should market prices fluctuate by a specified percent-
age. Waste Management, Inc. is paid $49.43 per ton and has
a minimum payment built into the contract for 8,000 tons per
year. While $49 per ton is more than the $31.50 for landfill
tipping fees, the city also saves half of the garbage collection
fee for each diverted ton as well as most transfer station and
long distance hauling costs. The total perton savings amounts
to roughly $80 perton but only 60 to 75 percent of the collected
tons are diverted from the landfill. Some tonnage has merely
been transferred from other recycling activities. This reduces
the savings to $50 to $60 per ton.
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WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
The RFP was issued for four
sectors of the city
Five-year contracts were
awarded to two companies
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
The metropolitan area was split into four sectors in the
Request for Proposal. Up to four firms could have been
awarded contracts, but no contractor could provide curbside
recycling service in more than half of the city. Five-year con-
tracts, with 2-year renewal clauses were issued to two contrac-
tors, Waste Management, Inc. and Rabanco. The 5-year con-
tracts provide a larger initial commitment by Seattle than most
cities have made. Generally, curbside recycling is phased in
slowly.
Seattle
Contract with private companies to provide recycling
services
Assist in promotion of recycling
Pay service providers per ton of recyclables
Private Partners
Provide bins and regular pickup of glass, metal
containers, newspaper, and mixed paper, and
provide any necessary processing of materials
(Waste Management, Inc. provides weekly pickup
and three stackable containers for source separation.
Rabanco provides one large 90 gallon wheeled tote
for commingled collection with monthly pickup.)
Plastic soda bottles (PET) are to be added in late
1989.
Market and promote recycling services
Develop mitigation program for any small drop-off
sites or businesses that might be negatively affected
by the curbside program
HOW WAS THE PROJECT
IMPLEMENTED?
Recycling is part of broad solid
waste management strategy
The recycling program was
preceded by rate increases for
disposal
Curbside recycling services are part of a broader
strategy that Seattle is implementing to encourage waste
reduction and improve management of solid waste. Seattle
began the process by introducing rate increases corresponding
with new costs of disposal at a neighboring landfill. The next
step was to introduce recycling, involving the public throughout
the planning process.
Seattle conducted environmental impact studies on
several landfill and incineration options to determine how
much waste to recycle and how to dispose of the remaining
waste that is not recycled. While incineration was determined
to be a viable option, the public supported recycling and the
city chose a long range goal of 60 percent recycling. As a
result, the city has now issued an RFP for a private company to
transport and dispose of the remaining 40 percent of the mu-
nicipal solid waste in a landfill outside of the metropolitan area
49
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WHY WAS THE PROJECT
SUCCESSFUL?
Cost pressure
Comprehensive plan
Public involvement
Pressure from rapidly rising costs of solid waste
management encouraged the city to act quickly. A comprehensive
plan for improving solid waste management enabled the city to
combine recycling efforts with measures, such as the variable
rate structure, to encourage waste reduction. Public involvement
in planning the new strategy and general support for recycling
were important elements of success.
With over 74 percent of Seattle's 150,000 customers
signed up for the voluntary program, the city has reduced its
residential waste stream by 12 percent. If, as city officials ex-
pect, participation reaches 80 percent in the near future, its
residential wastestream could be reduced by 23 percent.
LESSONS LEARNED
Marketing and promotion are
important
Seattle's successful experience with solid waste man-
agement through contractual service provision provided a
framework for private provision of curbside recycling services.
A strong promotional and marketing campaign, along with
volume based fees for solid waste collected, helped enlist
public involvement in the program.
CONTACT
Ginny Stevenson
Public Information Coordinator
Seattle Solid Waste Utility
710 2nd Avenue, Suite 505
Seattle, Washington 98104
(206) 684-7688
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CHAPTER IV
WASTEWATER TREATMENT
CASE STUDIES
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CHAPTER IV
WASTEWATER TREATMENT
CASE STUDIES
A. Private Involvement in Providing
Wastewater Treatment Services
Contract services and turnkey arrangements are the most common
types of public-private partnerships for the provision of wastewater
treatment services. At least 200 wastewater treatment plants na-
tionwide are under private service contracts. Private compa-
nies can often construct and operate wastewater treatment facili-
ties at a lower cost than public entities, reducing costs to taxpayers
and users. Estimates of combined capital and operating cost
savings associated with the private provision of wastewater treat-
Cost Savings ment services as compared to public provision, range from 15 to 40
percent. According to a recent report by a prominent investment
banking firm, overall savings attributable to a properly structured
privatization transaction (priorto tax reform) may reduce userfees
by 15 to 40 percent, compared to conventional Construction Grants
funding. (See Dean, Witter, Reynolds, Inc., Privatization: A
Financing Alternative for State and Local Governments, October
1986). In Mount Vernon, Illinois, for example, a private turnkey
contract cost the city 32 percent less than the estimated cost of
public financing and construction of their wastewater treatment
plant.
Tax Reform Act of 1986 Privatization and merchant facilities are less common for wastewa-
ter treatment since the Tax Reform Act of 1986. Auburn, Alabama
was able to arrange a privatization agreement to provide their
wastewater treatment plant because it took place before tax
reform. However, the wastewater treatment plant in Mount Ver-
non, Illinois, that was initially planned to be privatized, had to be
reconfigured as a turnkey project after the law changed.
With tax-driven benefits unavailable, private partners contemplat-
ing privatization must seek other sources of revenues such as user
fees or site-specific opportunities. In Chandler, Arizona, for ex-
ample, a private company built and operates a tertiary wastewater
treatment plant under a privatization arrangement. The effluent
can be sold for irrigation, thereby increasing its return. In addition,
initial costs of the plant were lowered by a private company donat-
ing land for the plant in exchange for receiving treated effluent f ree-
of-charge.
Even in cases where the private partner does not own the facility
or contribute equity, they maybe instrumental in arranging financ-
ing for the public partner. In Clinton, Kentucky the private partner
was more experienced in arranging financing for large capital
projects and helped Clinton secure a low interest rate on the
issuance of bond anticipation notes.
Developer Financing One source of private equity that was not affected by the Tax
Reform Act is developer financing. Developer financing can be
voluntary as with the purchase of sewer access rights in Escon-
53
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dido, California or involu ntary as in the case of impact fees imposed
in Orlando, Florida. The sale of sewer access rights in Escondido
was so successful that the city put aside a portion of the cash it
raised for future rehabilitation of the treatment plant.
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B. Case Studies of Public-Private Partnerships for Wastewater Treatment
SUMMARY CHART OF WASTEWATER TREATMENT CASE STUDIES
TYPE OF PARTNERSHIP
POPULATION
LOCATION
Privatization
Wastewater Treatment Plant
Privatization
Wastewater Reclamation Plant
Developer Financing
Sewer Access Rights
Developer Financing
Impact Fees
Turnkey Contract
Wastewater Treatment Plant
Turnkey Contract
Wastewater Treatment Plant
Turnkey Contract
Wastewater Treatment Plant
Contract Services
Wastewater Treatment Plant
29,760
68,220
83,550
160,408
17,470
1,600
4,674
4,480
Auburn, AL
Chandler, AZ
Escondido, CA
Orlando, FL
Mount Vernon, IL
Clinton, KY
Edgewater, NJ
Hood River, OR
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WASTEWATER TREATMENT
Privatization
WASTEWATER TREATMENT PLANT
AUBURN, ALABAMA
The City of Auburn entered into a privatization
agreement with Metcalf & Eddy to design, construct,
operate, and own two wastewater treatment plants
The city created the Governmental Utility Services
Corporation to issue tax-exempt bonds to finance
the project
Through privatization, the city built its new
wastewater treatment plants at a substantially lower
cost and in less time than if they had financed the
project with federal construction grants
Auburn, Alabama
SUMMARY
In the early 1980's, the City of Auburn's two wastewater treatment
plants were operating at capacity and experiencing compliance prob-
lems. To replace the aging facilities, the city decided to build two new
wastewater treatment plants but they were low on the state priority list to
receive federal grants. Faced with the need to act quickly to provide
additional capacity and solve its compliance problems, Auburn investi-
gated privatization options. When the state passed a new law enabling
local governments to enter into privatization agreements and create
special authoritiesto issue bonds, the city contracted with Metcalf & Eddy
to design, construct, operate, and own two new wastewater treatment
plants.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner
Private Partner (owner)
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Auburn, Alabama
Metcalf & Eddy, Inc.
29,760(1986)
$8,707 (1979)
City Council/Manager
July 1984
June 1986
$26 Million
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Federal grants were unavailable so
Auburn sought a private partner,
both to reduce costs and to attract
private equity
After 12 years of waiting for federal construction grant
money, the city was still low on the state priority list. Even it the
city had been awarded grant money, it would not be enough to
finance the needed facilities. As a result, the city investigated
options for privatization by issuing an RFP and hiring consult-
ants to study state legal restrictions on privatization. The city
felt that a private partner could construct the plants at lower cost
and could make an equity contribution.
WHAT WERE THE FINANCING
ARRANGEMENTS?
Special authority issued $36
million of 25-year floating/fixed
rate tax-exempt industrial
development bonds
Bonds are backed.by plant
revenues
Private partner contributed $10
million
For the purpose of issuing bonds, the city established
the Governmental Utility Services Corporation (GUSC), athree
member board appointed by the City Council. The GUSC
issued 25-year floating/fixed rate tax-exempt industrial devel-
opment bonds of $36 million to finance the project. In the case
of floating/fixed rates, the city pays a fixed interest rate on debt
service. The floating interest rate is based on an index selected
when the bonds are issued. If the floating rate goes below the
city's fixed rate, the company pays the difference. The bonds
are backed by revenues from the two treatment plants. The
AAA-rated bonds were insured.
Metcalf & Eddy contributed $10 million which was
used for bond redemption when construction was completed.
The bond redemption substantially reduced outstanding debt
and lowered debt service payments for the city.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
City issued an RFP and
created a committee to review
proposals
Auburn signed a 25-year
contract with Metcalf and Eddy
to design, construct, operate,
and own the plants
The city issued an RFP and established a review
committee to evaluate the proposals received. The review
committee selected Metcalf & Eddy through competitive nego-
tiation.
The City of Auburn signed a 25-year contract with
Metcalf & Eddy to design, construct, operate, and own two
wastewatertreatment plants. The city agreed to pay a monthly
service fee to Metcalf & Eddy. The monthly service fee has
two components, a base service charge and an operation &
maintenance (O&M) fee. The base service charge is set to
cover debt service. The O&M fee is adjusted yearly and is re-
negotiated every 5 years.
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Auburn
Lease the land for the wastewater treatment plants to
Metcalf & Eddy
Create the Governmental Utility Services Corporation
Establish and collect user charges
Pay monthly service fee to Metcalf & Eddy
Governmental Utility Services Corporation of the City of
Auburn (GUSC)
Issue bonds to finance the project
Metcalf & Eddy, Inc.
Design, construct, operate, and own two new waste-
water treatment plants
Secure the environmental permits
Comply with environmental permit requirements
Guarantee performance of the new wastewater treat-
ment plants
Operate the city's old wastewater plants during con-
struction of the new plants, and close down the old
plants when the new facilities are operational
HOW WAS THE PROJECT
IMPLEMENTED?
m CHy studied state restrictions
on privatization
State passed law authorizing
privatization agreements and
creation of special authorities
to issue bonds
Private company hired city
employees at existing
treatment plant
The city hired consultants for a study that identified re-
strictions on privatization in state law. Auburn's state senator
and representative introduced a bill in the state legislature
allowing local governments to enter into privatization agree-
ments. As a result, the state enacted a law in 1984 enabling
local governments to enter into long-term contracts with private
companies and to create special authorities to issue bonds.
Metcalf & Eddy hired the municipal employees who
worked at the city's wastewater plants. The company trained
the municipal employees during construction of the new
wastewater treatment plants.
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WHY WAS THE PROJECT
SUCCESSFUL?
Tax benefits encouraged plant
ownership by the private
company and lowered cost of
the plants
Leadership by Auburn's City
Manager was important
Public information diffused
oppositionto increased rates
Because the project was finished before the 1986 Tax Reform
Act, Metcalf & Eddy benefitted from the tax advantages associated with
private ownership that were available before the act. The tax benefits
allowed the company to provide the facilities at a lower cost to the city.
Auburn's City Managertook a leadership role to solve legal prob-
lems and gain support for privatization from city officials. The city held
public hearings to inform the community of its wastewater problems and
build community support for privatization.
Sewer charges doubled because of the project, but the city es-
timated that sewer charges would have tripled with traditional municipal
bond financing. Because the city informed the public about the alterna-
tives and the need for new facilities, they accepted the increased charges.
LESSONS LEARNED
Importantfor city to have
good advisors and work
with experienced private
partner
Careful negotiation can
produce agreements
beneficial to all parties
Publiceducation is
important
Auburn found that developing a privatization agreement that
minimized risks to the city required using experienced technical, legal,
and financial advisors. It was also important to select an experienced
private partner interested in long-term operation and maintenance of the
wastewater plants. Careful negotiation can result in a privatization
agreement that protects the interests of both the public and private
partner. Finally, the public education process organized by the city helped
increase community support for the project.
CONTACT
Douglas Watson, City Manager
City of Auburn
P.O. Box 511
Auburn, AL 36830
(205) 887-4900
59
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WASTEWATER TREATMENT
Privatization
WASTEWATER RECLAMATION PLANT
CHANDLER, ARIZONA
Chandler,
Arizona
SUMMARY
The City of Chandler hired an engineering consulting firm,
Malcolm Pirnie, to design a new tertiary wastewater
treatment plant and entered into a privatization agreement
with Parsons Municipal Services, Inc. to construct, operate,
and own the new wastewater plant
The Chandler Industrial Development Authority issued tax-
exempt industrial development bonds to finance the project
The private partner constructed a plant to accomodate the
growth of Chandler; the plant discharges a high quality
effluent that can be used for irrigation
The City of Chandler, a fast growing suburb of Phoenix, wanted to
build a new wastewater treatment plant to meet future needs. The city's
existing wastewater treatment plant was on the Gila River Indian Reser-
vation and expansion was not allowed by the tribe. Because the city
could not get a discharge permit, they decided to build a tertiary treat-
ment plant that would provide a high quality effluent for water reuse.
Chandler hired an engineering consulting firm to design a tertiary
wastewater treatment plant for 5 mgd, which could be expanded in
stages to 20 mgd. The city contracted with Parsons Municipal Services,
Inc. (PMSI) to construct, operate, and own the plant. The Chandler
Industrial Development Authority issued tax-exempt industrial develop-
ment bonds to finance the project.
A development company, the Ocotillo Group, donated the land
for the plant to the city. In return, the city and the Ocotillo Group have an
agreementfor Ocotillo to use treated effluent from the plant. The treated
effluent goes into a 90-acre lake system in a major development and is
used for landscape and agricultural irrigation.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner
Private Partner (owner)
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Chandler, Arizona
Parsons Municipal Services, Inc.
68,220(1986)
$17,813 (1979)
City Council/Manager
October 1983
November 1985
$22 million
60
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Federal grants were
unavailable and Chandler did
not want to issue bonds that
would incurdebtforthecity
WHAT WERE THE FINANCING
ARRANGEMENTS?
The Chandler Industrial
Development Authority issued
25-year tax-exempt industrial
development bonds of $23
million, backed by Parsons
Corporation
The Bank of America issued a
$23 million letter of credit to
guarantee the bonds
After construction, there was a
$1 million bond redemption
The city was low on the state priority list for federal
grants and did not want to increase taxes or user charges to
cover debt service for traditional municipal financing. Also,
Chandler had other infrastructure needs to accommodate its
rapid growth and wanted to avoid using its bonding capacity for
the wastewater plant. Chandler decided on privatization in order
to finance the project without incurring debt for the city.
The Chandler Industrial Development Authority issued
25-yearfloating rate, tax-exempt industrial development bonds
of $23 million to finance the project. The AA-rated bonds are
backed by Parsons Corporation, the parent company of PMSI.
The Bank of America issued a $23 million letter of credit to
guarantee the bonds. There was a bond redemption of $1 million
after the plant was completed.
Parsons Corporation backed the bonds in order to
complete the financing arrangements before the end of 1983. It
would have taken longer to issue bonds backed by system
revenues and company officials were concerned that tax law
changes might occur in 1984, reducing the tax advantages of
privatization.
The floating interest rate is set monthly and is based on
an index selected when the bonds were issued. The bond issue
is structured so that if bond holders want to sell their bonds when
the rate changes, the bond underwriter must buy them.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
M Chandler reached a long-term
agreement with a local
development company to
acceptthe treated effluent; it is
free for the first 15 years
because the company donated
land forthe plant
The city used two companies:
one for design and the other
for construction/operation of
the plant
First, the city negotiated a 50-year agreement for water
reuse with the Ocotillo Group, a development company which
owns land near the wastewater plant. The Ocotillo Group
donated the land for the plant to the city. In return, Ocotillo gets
the treated effluent free of charge for the first 15 years and,
thereafter, gets the first 5 million gallons-per-day free. The city
can exercise an option to use 10 percent of the treated effluent
in the first 10 years and, thereafter, the city's option is 20
percent.
The city issued an RFP for design of the plant and
selected a company after evaluating professional qualifications.
The city contracted with Malcolm Pirnie, Inc. to design a new
tertiary wastewater treatment plant, which would provide treated
effluent for water reuse.
Aftertheengineering consultant completedthe design,
the city issued another RFP. Through competitive negotiation,
the city contracted with PMSI to construct, operate, and own the
wastewater plant. PMSI also agreed to reimburse the city for
the costs of designing the plant. The agreement with PMSI is a
1 -year service agreement with provisions for the city to auto-
matically renew the agreement yearly for a total period of 25
years. State law prohibits local governments from entering into
long-term contracts.
61
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Chandler
Lease land for the plant to PMSI
Collect user charges and pay a monthly service fee to PMSI
Establish a fund to pay for capital improvements
Chandler Industrial Development Authority
Issue tax-exempt bonds to finance the project
Malcolm Pirnie, Inc.
Design the plant
Monitor the performance of PMSI during construction
Parsons Municipal Services, Inc. (PMSI)
Own the wastewater treatment plant
Reimburse the city for design costs
Review and approve the design
Construct, operate, and maintain the wastewater treatment
plant
Secure the environmental permits
Comply with environmental permit requirements
Guarantee performance of the plant
Ocotillo Group
Donate the land for the plant to the city
Contract with the City of Chandler to receive treated effluent
from the plant
HOW WAS THE PROJECT
IMPLEMENTED?
Chandler could not get a
discharge permit, so choseto
build a tertiary treatment plant
to provide a high quality
effluent
When Chandler decided to build a new wastewater treatment
plant to accommodate expected growth, the city could not get a
discharge permit because there was no placeto discharge the effluent.
As a result, the plant had to be designed for water reuse and Chandler
chose to build a tertiary wastewater treatment plant to provide a high
quality effluent. The Ocotillo Group played an important role because
it agreed to accept treated effluent for reuse.
62
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WHY WAS THE PROJECT
SUCCESSFUL?
Tax advantages reduced cost
to the city
A bonus was provided to the
com panyforearly completion
New plant promotes water
conservation because effluent
can be used for irrigation
PMSI was able to utilize tax advantages available for
privatization before the 1986 Tax Reform Act. Ownership of the
plant provided tax benefits to PMSI and reduced the cost forthe
city. The city did have to increase user charges, but user
charges would have increased more without the tax advan-
tages. Also, privatization allowed the city to provide the plant
without using its bonding capacity.
Construction was completed for $1.5 million below
budget. The city's contract with PMSI provided a bonus to the
company if the plant was completed below budget. The savings
also allowed a $1 million bond redemption, reducing the out-
standing debt.
Water conservation is an important benefit of the proj-
ect. The Ocotillo Group is using 100 percent of the treated
effluent and through water reuse can avoid using groundwater.
The treated effluent goes into a 90-acre lake system built by the
development company. Ocotillo uses the treated effluent pri-
marily to irrigate a golf course and residential areas. Some of
the treated effluent is used to irrigate agricultural land.
LESSONS LEARNED
Experienced and technically
capable partner was
necessary
It was useful to have an
engineering consultant,
independent of thefirm
constructing the plant, to
monitortheir performance
Because the city chose an advanced technology, it was
important to have project design and oversight by an experi-
enced and technically capable partner. The city hired an engi-
neering consultant to design the plant and assist with contract
negotiation. The consultant also monitored project construction
by providing performance reviews and inspections. Because
the city completed the design before issuing an RFP, they had
more control over technical aspects of the project and could
better compare costs among companies bidding on the prqect.
CONTACT
Alfred E. Pfahl, Assistant Public Works Director for
Development/City Engineer
City of Chandler
200 East Commonwealth
Chandler, AZ 85225
(602) 786-2788
63
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WASTEWATER TREATMENT
Voluntary Developer/Municipal Partnership
SEWER ACCESS RIGHTS
ESCONDIDO, CALIFORNIA
Escondido, California
SUMMARY
The City of Escondido sold rights to future sewer capacity
as a way to finance construction of waste water facilities to
provide that capacity
In return for sewage access that is necessary for
development, developers supplied funds to expand sewage
capacity
The city's sewer access rights program provided
incentives, including guaranteed rates of return, to
encourage purchase of access rights by developers and
local citizens
The program was so successful that funds raised from the
sale of sewer access rights financed the full cost of the
planned expansion, with ample reserves for future
rehabilitation
Located in an area of rapid growth, the City of Escondido's
sewage treatment plant was operating at capacity. In addition, the city
faced enforcement ordersf rom the state to improve operation of the plant
and a lawsuit from neighboring San Diego for non-performance on a
sewer services contract. Escondido developed a program in which rights
to future sewer capacity were sold to finance construction of wastewater
facilities to provide additional capacity. In 3 months, the sale of sewer
access rights to developers and local citizens raised funds to finance the
entire cost of construction with funds left over to finance future rehabili-
tation.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner (owner)
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Administrative Cost
Total Capital Cost
City of Escondido
Developers
83,550(1986)
$15,258(1979)
City Council/Manager
April 1982
June 1982
$30,000
$16 million
64
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Citizens were against
increasing public debt, user
fees, and conventional forms
of privatization
Developers purchase access
rightsto provide funds for
additional capacity
As aresult of conflict over growth policies in the commu-
nity, voter referendums had eliminated the use of bond financ-
ing, user fees, and conventional forms of privatization. With
limited options and the need to act quickly, Escondido devel-
oped a plan to sell sewer access rights to finance additional
sewer capacity. Through purchase of rights to future sewage
treatment capacity, developers and local citizens provided
funds for construction of the additional capacity before it was
built.
WHAT WERE THE FINANCING
ARRANGEMENTS?
San Diego paid $4 million for
its share of the planned
capacity
$12 million was raised through
sale of access rights
The city needed $16 million to finance the planned ex-
pansion in sewer capacity. Because Escondido provides sew-
age treatment for northern San Diego, the City of San Diego
contributed $4 million to finance its share of the planned
capacity, in 3 months, Escondido raised the other $12 million
through the sale of sewer access rights. The city originally
planned to sell 50 percent of the planned capacity, but raised
the necessary funds by selling only 40 percent of the planned
capacity.
The price of sewer access rights is based on an "equiva-
lent dwelling unit" (EDU). An EDU is 270 gallons-per-day, rep-
resenting the capacity required for an average single family
residence. The city established a price schedule for sewer
access rights that provided a 30 percent discount on sewer
access rights purchased during a 3-month sale. Buyers during
the 3-month sale were exempted from any future increases in
connection fees. When the 3-month sale began in April 1982,
the price of sewer access rights was $1,650 per EDU and at the
end of the sale in June 1982, the price became $2,150 per EDU.
Subsequently, the price of sewer access rights increased ac-
cording to the price schedule established by the city. In April
1989, sewer access rights sold for $3,300 per EDU.
HOW WAS THE PROGRAM
DESIGNED?
Access rights could be
purchased by property owners,
renters, and lessees
Each purchaser has a
separate contract with the city
Sewer access rights could be purchased by any prop-
erty owner, renter, or lessee in the incorporated area or in the
general plan area outside city boundaries. In the incorporated
area, buyers are guaranteed sewer service up to the limit of the
capacity purchased, regardless of when the sewer connection
is made. Outside the city boundaries, sewer connection is not
guaranteed because annexation is a condition for access to
sewer facilities.
Each purchaser of sewer access rights has a separate
contract with the city, specified in terms of the number of EDU's
requested. Buyers can pay in cash or use letters of credit and
not make payments for 2 years.
65
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HOW WAS THE PROGRAM
DESIGNED? (Continued)
Access rights could be bought
in advance during the three-
month sale, but land-use
approvals were not guaranteed
City guaranteed return on
resale of access rights, they
could only be resoldthrough
the city
The 3-month sale allowed buyers to purchase guaranteed
sewer capacity in advance of a building permit, but land-use approvals
were not guaranteed. Afterthe 3-month sale, seweraccess rights could
be purchased only if the city had excess capacity or sewer rights
available for resale, and only in relation to a building permit.
Sewer access rights can be resold only through the city. The
city guaranteed a return on resale of sewer access rights, reimbursing
sellers according to the established price schedule.
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Escondido
Administer the seweraccess rights program
Require developers to purchase access rights to secure
sewage capacity
Contract with the City of San Diego to provide sewage
treatment for northern San Diego
City of San Diego
Pay a share of capital costs representing its share of
capacity
Private Sector
Purchase access rights
HOW WAS THE PROJECT
IMPLEMENTED?
Apubllcrelationsfirm
promoted the program
An ordinance authorizing the
program was not necessary as
each purchaser has a
separate contract with the city
The city hired a public relations firm to identify potential
customers and develop promotional materials. Wide distribution of
notices in the service area helped to encourage participation in the
program.
The city did not pass an ordinance to authorize the program.
Instead, the city has a contract with each buyer. Individual contracts
allow the rights and obligations to be clearly defined.
WHY WAS THE PROJECT
SUCCESSFUL?
Rapid growth
Administrative costs of the
program were lower than the
cost of debt service
City guaranteed return on
resale of access rights
Because Escondido was growing rapidly and there was strong
demand for new treatment capacity, sales were higher than expected.
Through the sale of sewer access rights, the city financed its sewer
expansion at a much lower cost than paying for debt service. Admin-
istrative costs of the 3-month sale were only $30,000. While an esti-
mated $6,000 connection fee would have been necessary to cover
debt service, the city raised funds by selling sewer access rights at a
price of only $1,650 during the 3-month sale.
66
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WHY WAS THE PROJECT
SUCCESSFUL? Continued)
The program guaranteed a return on resale of sewer
access rights, providing an incentive to purchase them as an invest-
ment. The city guaranteed a33 percent return for the first year. For
sewer access rights held 5 years, the city guaranteed an 18 per-
cent return. The city did not guarantee how soon it would find a
buyer, but so far interested buyers have outnumbered sellers. To
date, about 20 percent of the access rights have been resold.
The city raises additional income through repurchase and
resale of sewer access rights. By early 1989, the city had raised
approximately $3 million.
LESSONS LEARNED
Sale of access rights is an
effective way to raise money in
a growing city
Participation should be limited
to property owners, renters,
and lessees
Important to require resale of
rights through the city
Risk can be limited by
reserving the rightto rescind
the sale if response is
insufficient
With high demand for development in a rapidly growing
area, Escondido learned that the sale of access rights to the private
sector can raise funds necessary to meet new sewage capacity
needs. Escondido limited the purchase of sewer access rights to
property owners, renters, or lessees. Also, it reserved the option to
refuse any contract so that an outsider could not buy a large share
of sewer access rights and potentially exert monopoly control over
the city's capacity. By requiring resale of sewer access rights
through the city, they could completely control the marketfor sewer
access rights.
Escondido limited risks to the community from allocation of
nonexistent future capacity by reserving the right to rescind the sale
and refund the proceeds if the response was insufficient to fund
most of the planned expansion.
CONTACT
Roderick J. Wood, Assistant City Manager
City of Escondido
100 Valley Boulevard
Escondido, CA 92025
(619) 741-4631
67
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WASTEWATER TREATMENT
Involuntary Developer Financing
IMPACT FEES
ORLANDO, FLORIDA
Orlando, Florida
To finance expansion and improvement of its
wastewater treatment system, the City of Orlando
issued revenue bonds backed by impact fees and user
charges
Because impact fees paid by developers back the
expansion portion (72 percent) of the wastewater
capital program, the city avoided taxing existing users
to accommodate new growth
SUMMARY
The City of Orlando planned significant expansion of its wastewa-
ter treatment system to accommodate rapid growth. Also, the city's waste-
water system needed improvements to comply with state and federal en-
vironmental regulations. To finance expansion and improvements, Orlando
issued $230 million of tax-exempt revenue bonds. Impactfees on new de-
velopments were dedicated to repaying the capital costs of expansion.
Existing users also helped pay for upgrading the system through higher
sewer fees. Orlando paid for their wastewater facilities by combining
impact fees on private developers, which paid for the new capacity they
required, plus increased fees on current users, which paid for upgrading
existing services.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner (owner)
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Orlando, Florida
Developers
160,408(1988)
$19,362(1979)
Mayor/City Council
May 1984
June 1988
$230 million
68
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Wastewater treatment system had to
expand to accomodate growth
CHy decided new development
should pay capital costs of
expansion through impact fees
and user charges
Orlando decided that the primary beneficiaries of ex-
panding the wastewater treatment system should bear the
cost. They instituted impact fees on new developments to back
the expansion portion of the bond financing. Part of the monthly
user fees paid by new customers is also dedicated to repaying
debt associated with expanding the system.
WHAT WERE THE FINANCING
ARRANGEMENTS?
72% Capital for System Expansion
28% Capital for System
Improvement
$230 million tax-exempt
revenue bonds
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
To finance a $230 million wastewater capital program,
the City of Orlando issued tax-exempt revenue bonds. The
bonds were insured, raising the rating to AAA. Capital needs to
improve existing facilities constituted 28 percent and the other
72 percent of the capital program was for expansion of Orlando's
wastewater treatment system.
The city counted customers of the wastewater treat-
ment system in 1983 and considers them "old customers."
Orlando assesses a monthly user charge, which increased 25
percent in 1984. The monthly user charge has two components,
an O&M rate and a capacity charge. For old customers, the
capacity component goes toward debt service for facility im-
provements.
"New customers" are those requesting services after
1983. In 1984, the city began charging each new development
a one-time impact fee under the wastewater capital program.
The per-gallon impact fee is calculated by a formula based on
315 gallons-per-day for a single family residence. The charge
per gallon is adjusted yearly and in 1989 was $7.55 per gallon.
For new customers, the capacity component of the monthly user
charge funds debt service on capital borrowed to expand the
system.
In addition to the $230 million wastewater capital pro-
gram, federal construction grants of $55 million financed im-
provements in the wastewater system.
City of Orlando
Provide an improved and expanded wastewater
treatment system
Developers/New Customers (1984 and after)
Pay an impact fee
Pay a monthly user charge for wastewater
treatment services; the capacity component for new
customers pays debt service on capital borrowed to
expand the system
69
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES? (Continued)
Old Customers (1983 and before)
Pay a monthly user charge for wastewater treatment
services; the capacity component for old customers goes
toward debt service for facility improvements
HOW WAS THE PROJECT
IMPLEMENTED?
Implemented as part of a long
range plan forgrowth
State court ruled that impact
fees can only be used to pay
for expansion of the
wastewater system
Before implementing the present wastewater capital program,
Orlando collected an impact fee to raise capital, but on a pay-as-you-go
basis. The city budgeted for its wastewater capital needs based on
revenues collected each year from impact fees. Orlando's present
wastewater capital program has a different philosophy of long-range
planning for expansion whereby the city commits anticipated impact
fees as payment for planned expansion.
A state court decision in the 1970's required that cities use
impact fees only to pay for expansion to accommodate growth, not for
improvements. Orlando hired engineers to certify the percentage of its
total wastewater capital program that is for purposes of expansion.
WHY WAS THE PROJECT
SUCCESSFUL?
Growth pays for itself by using
tmpactfees and user charges
to back bonds
The City of Orlando made growth pay for itself by using impact
fees and user charges for new customers to support bond financing.
Expansion of the city's wastewater treatment system to accommodate
new growth is paid for by new developments and eventually by new
residents responsible for the growth.
LESSONS LEARNED
Involves risk because
community depends on growth
to generate revenues
Impactfees may not deter
development in a rapid-growth
area
When financing depends upon growth to generate funds, the
public partner must considerthe risk that growth and revenues may not
meet expectations. Although Orlando expects continued rapid growth,
the city established a special account with funds to be available if impact
fees received in any year are not sufficient to pay bondholders.
Orlando's total wastewater connection fees (including impact
fees) are high for single family residences compared to other growing
urban areas in Florida. However, Orlando's monthly user charge is
lower than in other growing areas. With a long waiting list for sewer
connections, impact fees assessed by Orlando have not deterred
development.
CONTACT
Robert R. Garner, Comptroller
City of Orlando
400 South Orange Avenue
Orlando, FL 32801
(407) 849-2200
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WASTEWATER TREATMENT
Turnkey Contract
WASTEWATER TREATMENT PLANT
MOUNT VERNON, ILLINOIS
Mount Vernon, Illinois
SUMMARY
Mount Vernon entered into a turnkey agreement with
Environmental Management Corporation to design,
construct, and operate an upgraded and expanded
wastewater treatment plant owned by the city
The city issued tax-exempt and taxable general
obligation bonds to finance the project, which were
guaranteed by a letter of credit from a Japanese bank
The private partner completed the upgrade and
expansion in substantially less time and saved the city
approximately $3 million (32 percent) compared to the
city's initial pay-as-you-go plan
The area around Mount Vernon was experiencing rapid growth
due to the location of new automobile manufacturing plants. The auto
plants attracted a large number of associated businesses interested in
locating in Mount Vernon. It was necessary for the city to act quickly to
take advantage of the opportunity for growth. However, the city was
under a 1986 sewer connection ban because of compliance problems at
its wastewater treatment plant.
To overcome sewer restrictions quickly, Mount Vernon con-
tracted with Environmental Management Corporation (EMC) to design,
construct, and operate an upgraded and expanded wastewater treat-
ment plant. Sewer restrictions were lifted after the first phase of con-
struction was completed. Within 18 months, the city attracted approxi-
mately $300 million in private investment.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner (owner)
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Mount Vernon, Illinois
Environmental Management
Corporation
17,470 (1986)
$13,171 (1979)
City Council/Manager
June 1987
October 1988
$6.5 million
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Considered pay-as-you-go
and federal grants but timing
was critical
Private partner proposed to
complete the plant more
quickly than public
alternatives
The city and EMC decided
against private ownership
Mount Vernon contracted with EMC in 1984 to operate
its wastewater treatment plant and to bring it into compliance
with environmental regulations. However, the city needed to
upgrade and expand the plant to come into full compliance.
Mount Vernon passed a sales tax increase to finance a pay-as-
you-go upgrade and expansion to be completed by 1994. The
city also began working to obtain federal grants. However, the
options chosen by the city could not be implemented quickly,
so when EMC proposed to upgrade and expand the plant in a
shorter time, the city accepted.
The city and the company jointly decided against the
company's original proposal for private ownership, because of
reduced tax benefits of private ownership after the 1986 Tax
Reform Act and the potential that federal funds previously
spent on the wastewater plant would have to be refunded.
Public ownership allowed much of the cost of the project to be
financed with tax-exempt bonds.
WHAT WERE THE FINANCING
ARRANGEMENTS?
Total Capital Cost: $6.5 million
$5.8 million
tax-exempt
G.O. bonds
$240,000
private
$420,000
taxable
G.O.
bonds
To finance upgrading and expansion of its wastewater
treatment plant, the City of Mount Vernon issued 20-year tax-
exempt general obligation bonds of $5.8 million and $420,000
of taxable general obligation bonds to pay project costs not
eligible for tax-exempt financing. A Japanese bank issued a
$6 million letter of credit to guarantee the bonds, raising the
bond rating to AAA. EMC contributed $240,000 to finance the
project.
The bonds are backed by the City of Mount Vernon,
which pledged its full faith and credit and dedicated sales tax
revenues to pay off the bonds. A previous 1/2 cent sales tax
increase that the city passed for a pay-as-you-go upgrading of
the wastewater plant now provides revenues to backthe bonds.
The city could not use revenues from sewer charges to
backthe bonds because sewer charges were dedicated through
1994 to pay off bonds issued in 1975 to finance construction of
the existing plant.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
The city negotiated with a
private partner in a sole-
source procurement
Fixed-price contract signed to
upgrade and expand plant +
20-year service agreement
Through a sole-source procurement, the city signed a
fixed-price contract with Environmental Management Corpora-
tion (EMC) to design and construct an upgraded and ex-
panded wastewater treatment plant. When construction was
completed, the city's contract with EMC to operate the existing
plant was changed to a 20-year service agreement for EMC to
operate and maintain the upgraded and expanded plant.
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Mount Vernon
Own the wastewater treatment plant
Issue general obligation bonds to finance the project
Collect sales tax revenues and make monthly payments to
EMC through a bond trustee
Secure the environmental permits
Environmental Management Corporation (EMC)
Design, construct, operate, and maintain the upgraded and
expanded wastewater treatment plant
Guarantee compliance with environmental permit
requirements
Guarantee performance of plant equipment
Dispose of sludge
Operate the city's existing wastewater plant during
construction
HOW WAS THE PROJECT
IMPLEMENTED?
Mt. Vernon avoided conflicts
with state procurement rules
by voting for home rule
EMC made preliminary
proposal to Illinois EPA to
avoid permitting delays
WHY WAS THE PROJECT
SUCCESSFUL?
Strong leadership by the
mayor and public information
campaign were important
factors
Sewer restrictions were lifted
quickly
City was not responsible for
costs of change orders
Because the city voted for home rule in 1986, it avoided
conflicts with state procurement rules.
EMC worked with Illinois EPA before the agreement was
signed to prove that its design would meet effluent requirements. As
a result, the company helped the city avoid delays in permitting the
project.
Strong leadership by the mayor was important to the success
of the project. The mayor insisted that negotiations be open to the
public and thatthe public be kept informed. As a result, the community
supported private sector involvement in the project.
Timing was critical for Mount Vernon because the city needed
to solve its compliance problems quickly to accommodate new indus-
try. Through negotiations with Illinois EPA, sewer restrictions were
lifted after the first phase of construction was completed. By compari-
son, the city's initial plan to upgrade and expand the plant on a pay-as-
you-go basis was estimated to cost $9.5 million and not be completed
until 1994.
The fixed-price contract for design and construction guaran-
teed that the city would not pay costs that exceeded the initial bid
(change orders), which had added 20 percent to the bid cost for plants
in nearby communities. EMC absorbed the cost of change orders.
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LESSONS LEARNED
Mount Vernon learned that it
Is important to find a partner
that will accept responsibility
for all aspects of the project
Mount Vernon learned that it is important to negotiate
a public-private partnership that places responsibility for
design, construction and operation with a single company.
When problems occur, EMC has full liability. The city wanted
to avoid the difficulties it experienced with an earlier expansion
of the plant, when serious problems could not be resolved be-
cause none of the different private partners involved would
accept responsibility.
CONTACT
James Bassett, City Manager
City Hall
1100 Main Street
Mt. Vernon, IL 62864
(618)242-5000
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WASTEWATER TREATMENT
Turnkey Contract
WASTEWATER TREATMENT PLANT
CLINTON, KENTUCKY
Clinton, Kentucky
The City of Clinton entered into a turnkey agreement with
Aqua Corporation to upgrade and operate a waste water
treatment plant owned by the city
Clinton issued tax-exempt bond anticipation notes to
finance the project
The private partner completed the project for 30
percent less than the estimated cost of public
construction and grant financing
SUMMARY
Under an order from EPA to upgrade its wastewater treatment
system since 1981, Clinton faced fines from EPA if its treatment plant did
not meet the secondary treatment standards of the Clean Water Act. The
city was not high enough on the state priority list to be eligible for federal
grants, so Clinton investigated alternatives. After the state passed a pri-
vatization act in 1986, Clinton contracted with a private company to
upgrade (design and construction) and operate itswastewatertreatment
plant. The city retained ownership of the plant in order to obtain tax-
exempt financing.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner (owner)
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Clinton, Kentucky
The Aqua Corporation
1,600(1988)
$13,080 (Hickman County, 1979)
Mayor/City Council
September 1987
July 1988
$950,000
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Private partner had the
expertiseto upgrade and
operate the plant
Clinton retained ownership to
obtain tax-exempt financing
A small town with limited resources, Clinton was un-
able to raise the capital necessary to upgrade their wastewater
plant. While plant expansion can often be financed from
additional revenues generated by growth, plant upgrades often
require large capital investments without any new sources of
funds. Also, construction and operation of the new plant
required technical expertise beyond that of the municipal staff.
The city had planned to finance the project with federal
construction grants but when that was not possible, they began
to look for a private company with the resources and technical
expertise to construct and operate the plant. Clinton decided
to retain ownership of the plant in order to obtain tax-exempt
financing.
WHAT WERE THE FINANCING
ARRANGEMENTS?
Clinton Issued tax-exempt
bond anticipation notes backed
by user fees
The notes are for 3 years and
can be renewed or long-term
bonds can be issued upon
maturity
The c'rty implemented a new
rate policy to increase
revenues
Clinton issued 3-year, fixed-rate bond anticipation
notes totalling $950,000 at a 6.95 percent interest rate to
finance the project. To comply with state law, Clinton passed
an ordinance declaring that ultimately they intended to issue
bonds. Clinton chose to issue short-term notes because they
wanted the security of a fixed rate. The purchasing bank
agreed to a fixed rate for the short-term notes, but the bank
would not offer a fixed rate for long-term bonds. Also, Clinton
could issue short-term notes with lower upfront costs than long-
term bonds.
Liberty Bank of Louisville purchased the notes, and in
return, receives tax-exempt interest income. The 1986 Tax
Reform Act provides that if a municipality issues less than $10
million ayear in securities for public facilities, the interest is tax-
exempt when they are purchased by a bank.
The notes are backed by user fees, which were set to
pay off the debt over a 15-year period. Each time the 3-year
notes are renewed, the city and the bank can negotiate an
interest rateto renew the notes through the bank, or the city can
find another purchaser. Revenuesfrom userfees allow Clinton
to reduce the dollar amount of the notes when renewed.
The city implemented a new rate policy in October
1987. Previously, revenues for wastewater treatment were
drawn from property taxes and a $36 yearly charge per
customer for sewer service. Under the new system, sewer
charges increased to a flat rate of $15 per month for residential
customers. Commercial customers pay $15 per month forthe
first thousand gallons and $3.25 for each additional thousand
gallons.
76
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WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
Clinton negotiated with Aqua
Corporation in a sole-source
procurement process
Because of prior experience in working with engineers
from Aqua Corporation, the city decided to negotiate with them
in a sole-source procurement process. Clinton signed a
contract with Aqua Corporation for the design and construction
to upgrade the plant and a 5-year service agreement for op-
eration and maintenance.
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Clinton
Own the wastewater treatment plant
Issue bond anticipation notes to finance the project
Collect user fees to cover debt service
The Aqua Corporation
Assist Clinton to secure financing for the project
Design, construct, and operate the wastewater plant
Secure the environmental permits
Comply with environmental permit requirements
Guarantee performance of equipment
HOW WAS THE PROJECT
IMPLEMENTED?
State law authorized local
governments to enter into
turnkey contracts with private
companies
The state legislature passed an act in 1986 enabling
local governments to contract with private companies to own
and/or operate water and wastewater treatment facilities.
Clinton's project was the first wastewater system to be up-
graded by a private partner pursuant to the law.
WHY WAS THE PROJECT
SUCCESSFUL?
Private construction and
tax-exempt financing
reduced the cost of the
project
Clinton conducted a study as part of the process of
applyingfor EPA construction grantsthat estimated the project
cost at $1.3 million. Aqua Corporation upgraded the wastewa-
ter plant for only $950,000. Through upgrading the plant and
private operation, Clinton solved its effluent quality problems.
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LESSONS LEARNED
Clinton could keep user
charges down because of low
cost of capital
Although sewer charges for residential customers in-
creased to $15 per month, Clinton's user charge is low com-
pared to similar sewer systems in the state. This was an
important objective in Clinton because many of the residential
customers are retired and on fixed incomes. By financing the
project with short-term notes at a low fixed rate of interest,
Clinton could keep sewer charges low. The city is considering
lowering sewer charges at the beginning of 1990.
CONTACT
Bob Yates, Mayor
City of Clinton
P.O. Box 178
Clinton, KY 42031
(502) 653-3621
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WASTEWATER TREATMENT
Turnkey Contract
WASTEWATER TREATMENT PLANT
EDGEWATER, NEW JERSEY
Edgewater, New Jersey
The Borough of Edgewater created the Municipal Utility
Authority to issue tax-exempt bonds for improvement of its
wastewater treatment system
The authority entered into a turnkey agreement with
Lotepro Corporation to design, construct, and operate a
secondary treatment plant, owned by the authority
Through tax-exempt bond financing and private
construction, the project was completed for
approximately 25 percent less than the estimated cost
of financing the project with federal grants
SUMMARY
PARTIES INVOLVED AND
TIMEFRAME
After years of waiting for federal grant money to upgrade its
wastewatertreatment plant, grant money was no longer available in New
Jersey. The Borough of Edgewater faced the July 1988 Clean Water
Act deadline to provide secondary treatment. In addition, a state con-
struction ban prevented new development in Edgewater until its waste-
water system was improved. Edgewater's long-term contract to treat
sewage from the neighboring Borough of Cliffside Park required Edge-
water to ensure capacity to meet Cliffside Park's needs in addition to its
own.
Edgewater created the Municipal Utility Authority to own the ex-
isting wastewatertreatment plant and issue bonds to finance construction
of a secondary treatment plant. Following competitive negotiation, the
authority entered into a turnkey agreement with Lotepro Corporation to
design, construct, and operate the secondary treatment plant.
Public Partners
(owner)
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Edgewater, New Jersey
Municipal Utility Authority
Lotepro Corporation
4,674 (1987, Edgewater)
$20,737 (1979, Edgewater)
Mayor/City Council
January 1986
Scheduled July 1989
$16 million
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Federal grants were no longer
available
Cost of bond financing was
comparable to cost of state
loans
Chose to create municipal
utility authority to contract with
a private partner
Edgewater planned to use federal grants to construct
a secondary treatment plant, but when they finally neared the
top of the state priority list, federal grant money was no longer
available in New Jersey. Edgewater decided that the cost of
bond financing was comparable to the cost of financing the
project with state loans, which had replaced grants. Under a
new state privatization law, Edgewater created the Municipal
Utility Authority to issue bonds and contract with a private
company to design, construct, and operate a secondary treat-
ment plant owned by the authority.
WHAT WERE THE FINANCING
ARRANGEMENTS?
$16 million of tax-exempt
general obligation bonds were
Issued to finance the project,
backed by Edgewater and
diffside Park
A sewer connection fee of
$2,000 was Instituted by both
boroughs to help pay debt
The Municipal Utility Authority issued $16 million in 30-
year, tax-exempt general obligation bonds to finance the proj-
ect. The bonds are backed by the full faith and credit of the
Boroughs of Edgewater and Cliffside Park. The bonds were
insured, raising the rating to AA.
The debt will be paid by property taxes, userfees, and
sewer connection fees from new developments in both bor-
oughs. Revenues from Cliffside Park are deposited in Edge-
water's general fund.
For this project, Edgewater and Cliffside Park insti-
tuted a $2,000 sewer connection fee for new developments.
Because the sewer connectionfees are dedicated for payment
of the bonds, those revenues are deposited in a special
account.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
Private partner chosen through
competitive negotiation
Signed agreement with
Lotepro to design and
construct plant + 20-year
service agreement, renewable
every 5 years, for operation
and maintenance
The authority issued an RFP and selected Lotepro
Corporation through competitive negotiation. The authority
signed a contract with Lotepro to design and construct the
plant and a 20-year service agreement consisting of an initial
5-year contract with the option for three, 5-year renewals at the
discretion of the authority. The contract also requires Lotepro
to operate the existing plant during construction.
A 50-year contract, signed in 1955, between the Bor-
ough of Edgewater and the Borough of Cliffside Park requires
Edgewater to treat one-half of Cliffside Park's sewage through
2005. The contract was extended to 2017 to coincide with the
length of the bond issue. Cliffside Park pays a per-gallon
user fee for sewage treated at the Edgewater plant.
80
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
Borough of Edgewater
Create the Municipal Utility Authority
Back the general obligation bonds with the full faith
and credit of the borough
Municipal Utility Authority
Purchase the existing primary treatment plant from
the Borough of Edgewater
Sell revenue bonds to finance upgrading the primary
treatment plant and construction of a secondary
treatment plant
Borough of Cliffside Park
Back the general obligation bonds with the full faith
and credit of the borough
Pay user fees to Edgewater for treatment of one-half
of its sewage, under a long-term contract
Lotepro Corporation
Operate the existing plant during construction
Design, construct, and operate a secondary
treatment plant
Secure the environmental permits
Comply with environmental permit requirements
Guarantee performance of plant equipment
HOW WAS THE PROJECT
IMPLEMENTED?
State law allowed local
governments to contract with
private companiesto build and
operate wastewater treatment
facilities
Because of their low debt
limit, Edgewater created a
special authority to issue
bonds
Edgewater was able to seek a private partner as a
result of a state law passed in 1986. The law enables local
governments to contract with private companies for the fi-
nance, design, construction, and operation of wastewater
treatment plants.
Edgewater created the Municipal Utility Authority to
issue bonds because the bonding capacity of an authority is not
limited by the state. The Borough of Edgewater did not have
adequate bonding capacity because of its low debt limit set by
the state.
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HOW WAS THE PROJECT IMPLEMENTED?
(Continued)
Municipal employees kept their jobs at
the plant and maintain benefits as local
government employees
The contract required Lotepro to retain the treatment
plant's municipal employees. The employees maintain their
benefits because they are still employees of Edgewater. The
authority reimburses Lotepro for their salaries and benefits.
WHY WAS THE PROJECT
SUCCESSFUL?
Tax-exempt bond financing
was faster and less
expensive than alternatives
i Strong demand for
development assured
adequate revenues from
user fees
Edgewater saved approximately 25 percent of the
estimated cost of financing the project with federal grants. With
private construction and bond financing, the project could
proceed more quickly and they did not have to meet procure-
ment and wage rate requirements associated with the federal
grant process.
Edgewater had a large amount of valuable land ready
for development upon completion of the new wastewater
system. With strong developer interest, the authority could
anticipate sufficient revenues from user fees.
LESSONS LEARNED
Control over operating costs
was strengthened by a
20-year service agreement,
with option for renewal every
5 years
The authority increased their control over operating
costs by negotiating the 20-year service agreement with the
option for renewal every 5 years at the discretion of the author-
ity. While the agreement is a 20-year commitment for Lotepro,
the authority is committed for only 5 years. If the authority
decides it can operate the plant at a lower cost than Lotepro, it
can take over operation at the end of any of those 5-year
periods.
CONTACT
Bryan Christiansen
Mayor and Chairman of Municipal Utility Authority
Borough of Edgewater
916 River Road
Edgewater, NJ 07020
(201)592-1100
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WASTEWATER TREATMENT
Contract Operation and Maintenance
WASTEWATER TREATMENT PLANT
HOOD RIVER, OREGON
Hood River, Oregon
The City of Hood River contracted operation and
maintenance of its wastewater treatment plant to a private
company
Private operation solved the plant's effluent quality
problems and saves the City of Hood River
approximately 10 percent a year compared to the costs
of public operation
The private operator contracted with a nearby city to treat
its sewage sludge at the Hood River plant, utilizing some of
the plant's excess capacity and providing revenues to Hood
River
SUMMARY
The wastewater treatment plant in Hood River, Oregon was built
with the capacity to accommodate waste from a food processing com-
pany. The food processing company, which helped finance the plant,
accounted for one-half of the waste treated by the 3.5 mgd secondary
treatment plant. When that company closed, the city had difficulty scaling
down the plant and began to have problems maintaining effluent quality.
To solve these problems, the city contracted with Operations Manage-
ment International, Inc. (OMI) to operate and maintain the plant.
Also, OMI negotiated a service agreement with the nearby City
of Gresham to treat its sewage sludge at the Hood River plant, providing
benefits to both cities. Gresham could close its problem-ridden sludge
treatment system until completion of their new sludge treatment facility.
Gresham's sewage sludge uses some of the excess capacity at the
Hood River plant, for which Hood River receives a fee.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner (owner)
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Operating Cost
Hood River, Oregon
Operations Management
International, Inc. (OMI)
4,480(1986)
$15,175(1979)
Mayor/City Council
June 1983
Contract through 1990
$225,000 per year
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r
WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Hood River sought a private
partner with the expertise to
Improve and operate their
treatment plant
WHAT WERE THE FINANCING
ARRANGEMENTS?
Hood River collects user fees
and pays OMI monthly
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
OMI was selected in sole
source procurement process
OMI negotiated separate
agreement with a nearby city
to treat sludge
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
When the local food processing company closed,
Hood River's wastewatertreatment plant had excess capacity
and lost two-thirds of its operating revenues. The city had
limited technical resources to effectively scale down the plant
and they began to have problems maintaining effluent quality.
To maintain compliance with environmental regulations and
operate the plant more efficiently, the city contracted with a
private company with the expertise to operate and maintain its
wastewatertreatment plant.
Under the service agreement, the City of Hood River
pays OMI a yearly fee in monthly installments. Hood River
collects user fees to pay OMI. After the contract was signed,
userfees remained stable and in fact, the city was able to delay
a pending rate increase for several years.
Hood River knew of OMI from the company's work in
neighboring communities. OMI submitted a proposal to the
city and was selected through a sole source procurement
process. Originally, the city signed a 1 -year service agree-
ment with OMI to operate and maintain the wastewater treat-
ment plant. The city then signed a 3-year agreement with OMI,
but halfway through that agreement, a 2-year extension was
negotiated. The service agreement requires OMI to operate
and maintain the wastewater treatment plant in compliance with
all environmental regulations.
OMI negotiated a service agreement with the City of
Gresham to treat its sewage sludge at the Hood River plant.
Through a separate contract between OMI and Hood River,
OMI pays the City of Hood River $24,000 per year fortreatment
of Gresham's sewage sludge.
City of Hood River
Own the wastewater treatment plant
Secure the environmental permits
Make monthly payments to OMI
Responsible for capital improvements to the plant
Operations Management International, Inc. (OMI)
Operate and maintain the plant
Guarantee compliance with environmental
regulations within the plant's design capability
Secure a separate contract with the City of Hood
River to treat sewage sludge from the City of
Gresham at the Hood River plant
84
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES? (Continued)
Operations Management International, Inc. (OMI)
(continued)
Contract with the City of Gresham to treat its
sewage sludge at the Hood River plant
Make payments to the City of Hood River for
treatment of Gresham's sewage sludge
HOW WAS THE PROJECT
IMPLEMENTED?
Agreement signed between
OMI and Gresham while new
plant constructed in that city
Sludge used for land
application at nearby farms
The City of Gresham's sludge treatment facility had
high operating costs as well as odor and compliance problems.
The agreement between OMI and Gresham provides for treat-
ment of Gresham's sewage sludge at the Hood River plant until
Gresham's new facilities are completed. OMI spent $20,000 to
rehabilitate equipment to treat Gresham's sludge, using funds
from Gresham's payments to OMI.
Sewage sludge from both cities is used for land appli-
cation at approximately 100 nearby farms. OMI hauls the
sludge using a sludge truck owned by the City of Hood River.
OMI distributes the sludge according to a sludge manage-
ment plan it produced for the city to comply with the strict state
regulations for land application.
WHY WAS THE PROJECT
SUCCESSFUL?
OMI operates the plant at
lower cost due to technical
expertise and ability to shift
staff to meet needs between
five plants they operate in the
LESSONS LEARNED
Private company can provide
management and technical
expertise not otherwise
availableto small community
Private operation solved the plant's effluent quality
problems. Due to the private partner's technical expertise, the
plant operates more efficiently than it had under public manage-
ment. In addition, because OMI operates wastewater treat-
ment plants for five cities in the area, OMI can transfer staff
between plants to meet peak work demands or provide special-
ized expertise. Each city avoids the costs of hiring additional
personnel or consultants.
Asmall community with limited resources can save op-
erating costs and solve compliance problems by contracting
plant operation and maintenance with a private company.
Private companies can provide management and technical
expertise not otherwise available to the community.
The city arranged for monthly meetings of city officials
and OMI at the plant, which helped improve communication
between the public and private partner.
CONTACT
Gene McAdams, City Administrator
City of Hood River
P.O. Box 27
Hood River, OR 97031
(503) 386-1488
85
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CHAPTER V
DRINKING WATER
CASE STUDIES
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CHAPTER V DRINKING WATER CASE STUDIES
A. Private Involvement in
Drinking Water Supply
A key advantage to public-private partnerships for drinking
water supply is the opportunity to develop regional strategies to
meet water needs. Therefore, many partnerships for water supply
are designed to regionalize provision of the service.
Regionalization Partnerships can introduce economies of scale to groups of small,
inefficient water companies. On their own, small water utilities are
often undercapitalized and cannot collect adequate user fees to
covercosts. These companies (both publicly and privately-owned)
often have difficulty complying with environmental standards. In a
privatization arrangement in York County, Pennsylvania, a large
private company with the resources and expertise to upgrade a
number of inefficient small water companies, integrated the water
supply systems. In Westmoreland County, Pennsylvania, the
private partner manages but does not own the water supply
system. Because of its effective management of this system, the
county acquired seventeen other small water systems in the area.
Cost Savings A similar problem was addressed in Sabine Parish, Louisiana, by
a contract service arrangement. The customer base of the water
system was too small to be financially viable and the parish could
not secure a loan to expand the system because of past operating
problems. So, they entered into a contract with a private company
for the operation and maintenance of the system. Operating costs
fell by 60 percent and the parish was able to secure a loan to
finance expansion of the system. Lititz, Pennsylvania, decreased
operating costs by contracting with a private partnerto provide both
water supply and wastewater treatment services.
Irving, Texas required a supplemental source of waterbut could not
afford to pay for their own wells. They contracted with a private
company to drill new wells and provide waterto the city. The private
partner paid to drill the new wells so the town only paid a per-gallon
cost for pumping and delivery of water.
Private Expertise
Communities also seek private partners to provide the specialized
technical expertise required for water supply. For example, Myrtle
Beach, South Carolina needed a treatment plant that could provide
a new and innovative pre-treatment process because their water
supply contained high levels of organics and color. They entered
into a turnkey contract with a private company to design and
construct an ozone treatment plant. Myrtle Beach was able to
benefit from the sophisticated plant while avoiding the investment
risk because of the turnkey arrangement with the private partner.
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B. Case Studies of Public-Private Partnerships for Drinking Water
SUMMARY CHART OF DRINKING WATER CASE STUDIES
TYPE OF PARTNERSHIP
POPULATION
LOCATION
Contract Operation & Maintenance
Public Water System
Developer Financing
Private System
Contract Services
Private Development of Wells
Privatization
Acquisition of Small Water Systems
Contract Services
Public Water System
Contract Services
Public Water System
Turnkey Contract
Public Water System
1,600
327
130,200
9,344
7,590
90,683
27,800
Sabine Parish, LA
Belen, NM
Irving, TX
York County, PA
Lititz, PA
Westmoreland County, PA
Myrtle Beach, SC
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DRINKING WATER
Contract Operation and Maintenance
PUBLIC WATER SYSTEM
SABINE PARISH, LOUISIANA
Sabine Parish, Louisiana
SUMMARY
PARTIES INVOLVED AND
TIMEFRAME
Faced with imminent foreclosure for not paying bond
debts and a possible enforcement order for non-
compliance with EPA safe drinking water standards,
Ebarb Water Works District (EWWD) entered into a
contract with the Utility Data Service Corporation
(UDS) to operate and maintain the water system
UDS provided a viable plan for operation and
maintenance of the system necessary to secure a loan
from the Farmers Home Administration (FmHA) to
expand the plant
Private operation and maintenance lowered operating
costs by 60 percent
After 3 years of poor water quality and customer service, non-
compliance with EPA and FmHA regulations, and mounting indebted-
ness, the water system was effectively bankrupt. Ebarb Water Works
District (EWWD) contracted with UDS to operate and maintain the water
system. To improve the financial viability of the system, a plan was
also implemented to expand the plant and customer base through ac-
quisition of a federal loan by EWWD.
The plan for expansion of the system also included an agreement
by UDS to operate with a negative cash flow until the expansion plans
were implemented and to provide additional water supplies through an
agreement with a neighboring water authority. These actions lowered
the operating cost of the system from 80 cents per 1000 gallons to 30
cents per 1000 gallons. The Ebarb system is now a financially sound
public utility.
Public Partner (owner)
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Cost
Ebarb Water Works District I
Utility Data Service Corporation
1,600
$12,000
Board of Supervisors
December 1987
December 1989
$2.0 million
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
EWWD chose UDS because
they could operate the plant
efficiently and raise resources
to expand the plant
Impracticality of pay-as-you-go
for such a large project led
EWWD to seek a private
partner
The EWWD operated the system within tight budget
constraints. They did not have additional sources of funding to
continue operation or to consider expanding the distribution
system. In light of continuing poor water quality, management,
and customer service, public faith in the EWWD's ability to
continue operation was low.
The EWWD considered pay-as-you-go to expand the
system but, due to the large amount of capital necessary to
start the project, this approach was not practical. Further, the
system improvements would not have been in place until 1997.
WHAT WERE THE FINANCING
ARRANGEMENTS?
FmHA provided a grant of
$30,000 and a loan of $1.9
million to expand the system;
UDS's plan for operation and
maintenance was key to
securing the loan
Increased user fees and a
larger customer base will
provide funds to repay the
loans
FmHA agreed to waive all
payments until the expansion
was complete and UDS
agreed to operate with a
negative cash flow
The service contract includes a list of fees for various
activities performed by UDS in the operation of the district's
water treatment and distribution system. The contract also
includes a provision that EWWD can only cancel the agreement
if they do not owe money to UDS.
FmHA provided a grant of $30,000 and a loan of $1.9
million to EWWD to expand the water system. A primary goal
of the FmHA loans is to turn small troubled utilities into
financially viable entities. The operation and maintenance plan
provided by UDS was key to securing the loan.
EWWD is relying on the increased customer base to
pay the existing bond indebtedness and interest owed as well
as provide funds for continued operation and reserve funds. It
is not necessary to raise additional funds from taxes or other
sources. However, user fees will increase by 20 percent.
FmHA agreed to waive all bond, reserve, and sinking
fund payments until the expansion was complete on the condi-
tion that the loan be used to initiate the expansion (i.e., add
customers on existing lines, solicit customers for future expan-
sion, and improve operation of the existing system). To fund
immediate needs for reporting and compliance, UDS set aside
$25,000 and agreed to operate with a negative cash flow until
the expansion plans were implemented.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
EWWD chose UDS without a
formal procurement process
EWWD entered into a contract with UDS without
issuing an RFP. UDS accepted the financial risks of the
project and presented an acceptable operation and mainte-
nance plan.
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
Ebarb Water Works District I
Contract with UDS to operate and maintain the
water system
Apply for a loan from FmHA to expand the system
Utility Data Service Corporation
Operate and maintain the water system
Comply with environmental permit requirements
Market water to expand number of connections
" Contract with neighboring water authority to provide
additional supplies
HOW WAS THE PROJECT
IMPLEMENTED?
UDS began a marketing
campaign to expand the
customer base and to
increase public confidence
in the utility
To provide immediate cash flow, UDS marketed water
to several local industries. The success of this effort immedi-
ately raised revenues by 10 percent. UDS also contracted
with the Sabine River Authority to provide additional water
supplies for immediate expansion of their customer base.
To increase public confidence in the utility, UDS dis-
tributed flyers and mounted a local advertising campaign to
promote the new plans for the water system.
WHY WAS THE PROJECT
SUCCESSFUL?
Local support and information-
sharing were important
UDS provided money to
cover up-front costs
FmHA grant was available for
plant expansion
As the EWWD was in default on bonds, immediate
action was required. A strong local police jury supported the
project and the public was kept informed through active news
campaigns. UDS also provided all initial up-front costs
($100,000) that otherwise, would not have been available.
Availability of federal funds, along with a viable plan for opera-
tion and maintenance of the system, were also major factors in
the success of the project. Underscoring the potential for
private involvement in improving water systems is the fact that
FmHA recently sold a portion of its loan portfolio to a private in-
vestment group led by G.E. Capital Corporation.
93
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LESSONS LEARNED
Important to have a partner
with experience and technical
expertise
Small water districts must
ensure that their customer
base is large enough to be
financially viable
A private partner with experience and technical exper-
tise may be able to improve a publicly-owned and operated
system. UDS was able to turn it around to be a successful
public utility. An important lesson for small water districts is
that the customer base must be large enough to ensure that
the system is financially viable.
CONTACT
Jeff Pruitt
General Manager
Utility Data Services
2800 North 7th Street
West Monroe, Louisiana 71291
(318) 397-2835
94
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DRINKING WATER
Voluntary Developer Financing
PRIVATE WATER SYSTEM
BELEN, NEW MEXICO
1A private developer formed a water .company to serve a
new development that could not be served efficiently by
the public system
'Because the developer absorbs the short-term costs of
the system not operating at capacity, users do not share
the risk that development may not meet expectations
Belen, New Mexico
SUMMARY
Due to an insufficient customer base, the City of Belen was
unable to extend their public water system to a new development in the
outlying areas of the city. A developer formed the Monterey Water
Company (MWC) to provide drinking water service to residents of a new
community.
Traditionally, such developer-owned systems have been plagued
by poor water quality and inadequate finances stemming from an inade-
quate customer base. As a result, developer-financed water systems are
often frowned upon by state public utility commissioners and state
drinking water regulatory agencies. The New Mexico Public Service Com-
mission (NMPSC) allowed the MWC to install a plant contingent upon the
institution of an innovative rate structure that would significantly improve
the financial viability of the project. Underthat approach, a water system
was installed sufficient to service the entire project when fully developed.
User charges, however, were established on the basis of providing service
to current customers. The difference between the revenues that would be
collected if the system were complete and actual revenues, was subsi-
dized by the developer. The resulting system is financially sound and
meets water quality standards.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner
Private Partner (owner)
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Belen, New Mexico
Monterey Water Company
327
$16,928
City Council
March 1987
October 1988
$327,000
95
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
The city could not extend
water supply to the Monterey
development
The developer established a
water company to serve the
new development
An innovative rate-making
structure was instituted
WHAT WERE THE FINANCING
ARRANGEMENTS?
Monterey's rate-making
structure, with rates based on
the cost of serving current
customers, requires the
developer, instead of the
customers, to bear additional
costs of water supply before
the area is fully developed
The City of Belen was unable to extend drinking water
service to the new development due to the small customer base.
The Monterey Water Company was formed by thedeveloperto
provide that service. However, such developer-owned systems
often encounter serious financial difficulty, particularly if the
developer does not sell all the lots on which the capacity of the
system was based. Many developer-financed systems have
been abandoned to homeowners' associations that are left
without the means to meet safe drinking water requirements.
Developer financing was permitted by the NMPSC in this case
because the developer agreed to an innovative rate design.
The rate structure assured long-term financial viability by re-
quiring the developer to subsidize the costs of unused capac-
ity during the early years of the development, while lots are still
being sold.
Several alternative plant sizes and rate-making struc-
tures were considered. Under one alternative, current cus-
tomer rates would have been based on a fully completed
water system. This approach would have resulted in higher
rates for current customers until the project was completed.
Under another alternative considered, the water
system would have been scaled down to a level sufficient to
meetthe needs of current customers. As additional customers
were added and charges increased, the system would have
been upgraded. This rate-making structure however, would
not have allowed the developer to reasonably determine the
probable rate of recovery for capital expenditures made for the
system, due to the engineering difficulties in upgrading the
existing systems.
Under the rate-making approach adopted for the
Monterey Water Company, the plant and system installed
form the basis for setting the number of connections that can
be served by the company when fully developed. The cost to
serve the entire development was estimated along with the
potential consumption of each service connection. Rates
were designed based on the cost of serving the current
number of customers.
The resulting rates allowthe recovery of variable costs,
as the number of customers increase, while eventually permit-
ting the recovery of the company's total fixed costs. Until the
number of connections grows to where it can generate reve-
nues sufficient to cover the total fixed costs, the difference
between the fully developed rate revenues and the actual cost of
service is absorbed by the developer.
96
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
Monterey Water Company (MWC)
Apply for Certificate of Public Convenience
Design, build, finance, own, and operate a water
system to serve the new development
Secure and comply with environmental permits
New Mexico Public Service Commission (NMPSC)
Approve water rates for the Monterey Water System
I Secure an agreement from Monterey obligating it to
supportthe water system throughout its development
HOW WAS THE PROJECT
IMPLEMENTED?
Monterey Water Company
secured a Certificate of Public
Convenience
As a new utility, the Monterey Water Company was
required to apply for a Certificate of Public Convenience from
the New Mexico Public Service Commission. As part of that
process, rates and rate justifications were proposed by the
water company. The justifications were reviewed by the com-
mission and an engineering inspection of the plant and cus-
tomer base was undertaken. The project was contingent upon
MWC's agreeing to a plan that assured NMPSC a financially
viable water system would result.
WHY WAS THE PROJECT
SUCCESSFUL?
Strong support from the New
Mexico Public Service
Commission
Water rates remained low
Strong support forthe rate-making approach from the
New Mexico Public Service Commission was a significant factor
in the success of the project. Water rates remained low
enough to ensure continued success of the development.
This also enhances the developer's prospects forthe success
of the development. The customers were not required to carry
the burden of higher rates that, in effect, causes the customer
to share in the risk of development. Since the resulting system
is financially sound, it is better able to meet water quality stan-
dards.
97
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LESSONS LEARNED
If proper financial controls are
applied, developer financing
can be a successful means of
providing water to sparsely-
populated areas
Developer financing can be a successful means of
building small water systems if proper financial controls are
applied. The NMPSC has demonstrated how such controls can
be made to work within the existing regulatory process.
CONTACT
Allen Girdner
New Mexico Public Service Commission
224 East Palace Avenue
Santa Fe, New Mexico 87503
(505) 827-6940
98
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DRINKINGWATER
Contract Service Provision
PRIVATE DEVELOPMENT OF WELLS TO SUPPLEMENT PUBLIC
WATER SUPPLY
IRVING, TEXAS
Irving, Texas
Faced with high costs of water supplied by an
adjacent community and an expanding customer
base, the City of Irving signed a contract with
Whalen Corporation to develop new wells and
supply a portion of the city's water
Whalen Corporation provided up-front costs of well
development so that Irving only paid a per-gallon
cost for pumping and delivery of water
The supplemental water supply developed by
Whalen was cheaper and so slowed the rise in
water rates
SUMMARY
The City of Irving, Texas required a supplemental source of
water to meet demands during peak periods. Because of limited debt
capacity and the procedural complexity of issuing bonds to finance their
own wells, the city entered into a contract with Whalen Corporation to
develop newwells and supply water. Under the terms of the contract, the
city was not responsible for any capital costs. At the end of the 7-year
service contract, the wells become the property of the city after payment
of a small transfer fee. Costs of pumping and delivery of water are
included in the per-gallon fee paid by Irving to Whalen Corporation for
water supplied.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner
Private Partner (owner)
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Cost
Irving, Texas
Whalen Corporation
130,200
$12,344
Mayor, City Council
February 1978
February 1988
$420,000
99
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
The private partner could
provide water more cheaply
thanthe existing supplier
Lack of capital and bonding
capacity ruled out public
alternatives
Irving sought a private partner as a way to lower the
cost of water and to meet peak period demands. Whalen
Corporation provided water more cheaply than the primary
source of the city's water, Dallas Water Utility. By combining
purchases of water from the City of Dallas with a supplemental
supply from privately-owned wells, Irving reduced the cost of
water to the community and expanded the supply to accom-
modate growth.
The alternative to private water supply was to increase
purchases from Dallas or for Irving to develop their own wells.
However, neither Dallas Water Utility nor the City of Irving had
the necessary bonding capacity or capital to undertake the
projects.
WHAT WERE THE FINANCING
ARRANGEMENTS?
Development of wells was
financed privately
Irving pays per-gallon fee for
water used
Whalen Corporation secured private financing to de-
velop the wells. Irving agreed to purchase water from Whalen
Corporation for 7 years, with no financial responsibility for the
initial investment. The city is responsible for paying a per-
gallon fee forthewaterthey need, including the cost of pump-
ing and delivery. At the end of the contract, the wells become
the property of the city for a small transfer fee.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
Whalen agreed to drill wells
in accordance with city
specifications
City agreed to provide site and
purchase water
Irving only pays for water used
The City of Irving entered into a 7-year contract with
Whalen Corporation, agreeing to provide a drilling site accept-
able to a qualified hydrologist provided by Whalen and to
purchase water to meet peak period demands. In return,
Whalen agreed to drill wells in accordance with city specifica-
tions and guarantee production of 1 mgd over the 7-year
period. If the wells fail to yield the minimum guaranteed
amount of water, the city pays only for the water actually
delivered. The cost is lower for water supplied over the mini-
mum guaranteed amount (1 mgd).
100
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Irving
Provide the well drilling site
Purchase water to meet peak demands
Whalen Corporation
Drill wells in accordance with city specifications
Guarantee minimum water supply of 1 mgd
Secure the environmental permits
Comply with environmental permit requirements
Own wells until the end of the 7-year contract
HOW WAS THE PROJECT
IMPLEMENTED?
City treasurer searched for
suitable company
City council approvedthe
contract
The city treasurer conducted an extensive search to
find an oil and gas exploration firm and a well-drilling company
willing to undertake the project. The only bid submitted in
response to their RFP was from Whalen Corporation. As no
other firms submitted bids, the procedural requirements for im-
plementation of the project were minimal. Nopublic notice was
required however, city council approval took almost 3 months.
Since signing the first contract in 1987, four additional contracts
have been signed to increase the amount of water the com-
pany supplies.
WHY WAS THE PROJECT
SUCCESSFUL?
The city did not incur any
financial responsibility with the
project
As the project did not require an initial investment by
the city, Irving did not incur any financial responsibility with the
project. In contrast, development of water supplies using
bond money would have cost the city twice the amount bor-
rowed by the time the bonds matured. In addition, the private
company implemented the project much faster than Irving
could have issued bonds to finance the project.
101
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LESSONS LEARNED
The city should have included
contingencies in the contractto
protect against high costs of
water pumping and delivery
Private water supply to
supplement supply from
publicly-owned company
reduced the overall cost of
waterto the city
Costs to the city were significantly higher than ex-
pected because Irving agreed in the contract to pay costs of
pumping and delivery of water. It was necessary to drill more
deeply than anticipated and so pumping and delivery costs
were higher. The lack of flexibility in the contract regarding
these costs reduced the benefits to the city.
The City of Irving reduced overall costs of drinking
water by contracting with a private company to develop wells
and supplement their existing water supply. In addition, the
water supply was expanded to accommodate growth.
CONTACT
Ron McCuIIer
Water Division
City of Irving
P.O. Box 152288
Irving, Texas 75015
(214)721-2411
102
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DRINKING WATER
Privatization
ACQUISITION OF SMALL WATER SYSTEMS WITHIN A REGION BY
A LARGER, PRIVATE COMPANY
YORK COUNTY, PENNSYLVANIA
York County, Pennsylvania
The Borough of Loganville sold its water system to
York Water Company because it lacked the
resources to make the substantial investments
necessary to upgrade and improve the system
York purchased other smal! water systems that
were having problems supplying adequate quality
or quantity of water in the region (Mid-Penn and
West Manchester)
The company bought the systems at attractive
prices and made substantial investments for
improvements and upgrades
SUMMARY
York Water Company acquired several small water systems
(private and public) with histories of poor water quality and quantity. In
each case, the transaction was initiated by the small water system.
Financial arrangements were favorable to York, in one case allowing a
purchase price significantly below the depreciated book value of the
facility. Supportive regulatory treatment by the state public utility com-
mission was a significant factor in the success of the projects.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner
Private Partner
Population
Form of Government
Project Initiated
Project Completed
Purchase Price
1 Developer-owned watersystem
Borough of Loganville
West Manchester
Mid-Penn1
York Water Company (owner)
(Loganville) 8,775
(Micl-Penn/West Manchester) 569
Borough Council
Loganville -1976
Mid-Penn/West Manchester -1985
Loganville -1980
Mid-Penn/West Manchester -1988
Loganville - $45,000
Mid-Penn/West Manchester - $110,000
103
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Customers were dissatisfied
with the service
The customer base was too
small to raise necessary
capital and grants were
unavailable
York was approached because
of their reputation in improving
small water systems
The water system in the Borough of Loganville had sig-
nificant problems maintaining adequate water quality and
quantity due to the age of the system and the high nitrate
content in the wells. Customers were dissatisfied with the serv-
ice and pressured the borough to make improvements. With a
customer base too small to raise the funds and state grants not
available to finance the project, Loganville turned to a private
company to acquire the system. As York Water Company had
a reputation for buying and improving small water systems in
the region, they were approached by the Borough of Logan-
ville to purchase their system.
Mid-Pennwas a small developer-owned water system
and West Manchester was a small publicly-owned system
adjacent to Mid-Penn. Extensive problems with the systems
included water quality, insufficient quantity and poor distribu-
tion design, lack of water pressure, and poor service. System
customers requested that the systems be sold to York.
WHAT WERE THE FINANCING
ARRANGEMENTS?
Low price made H possible to
invest in improvements
Bonoficiaries of the improved
water supply invested in the
company
In Loganville, the financial arrangements of the pur-
chase made the transaction very attractive for York. The
original cost of the system was $200,000, with depreciation
calculated over 125 years but the system was sold for
$45,000. The public utility commission allowed rates to be
based on the original cost ($200,000 less accumulated depre-
ciation). York spent an additional $125,000 on system up-
grades and improvements.
A unique financial arrangement was also afactor in the
Mid-Penn/West Manchester acquisition. Mid-Penn and West
Manchester were small systems that were inadequate to
service the needs of residents and the expanding local indus-
try. Both systems requested acquisition by York but, apart, the
systems were not financially viable due to the small customer
bases. As a result, an arrangement was concluded whereby
York County supplied a $61,000 block grant, a local industry
supplied $500,000 and York supplied the remaining $110,000
to purchase the two systems. The arrangement provided
needed supplemental water for the industry and brought reli-
able water service to county residents.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
Fixed-price contracts
In each case, the York Water Company entered into
fixed-price contracts to purchase the systems.
104
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
York Water Company
Own, operate, and maintain the water systems
Collect user fees directly from customers
Secure the environmental permits
Comply with environmental permit requirements
File Certificate of Public Convenience
Small Water Systems (Loganville, Mid-Perm, & West
Manchester)
Initiated sale of the systems to York Water Company
HOW WAS THE PROJECT
IMPLEMENTED?
Public notice of sale and
purchase was provided
Company filed a
Certificate of Public
Convenience
The purchase of the Loganville and Mid-Penn/West
Manchester water systems required that a notice of public sale
be issued and a Certificate of Public Convenience filed with the
Pennsylvania Public Utilities Commission (PPUC). State
regulations also require public notice of the purchase. If public
opposition is raised, the PPUC decides if the purchase is in
the public interest. No public opposition was received in any of
these sales.
WHY WAS THE PROJECT
SUCCESSFUL?
Support of the public utilities
commission was important
Public information campaign
raised support for the project
In the Loganville and Mid-Penn/West Manchester
acquisitions, support from the PPUC was cited as a major factor
in the projects' success. The PPUC encouraged the York
Water Company to acquire these small, troubled systems.
Another important factor in both transactions was an exten-
sive effort to increase public awareness of the projects. Letters
were sent to the affected public outlining the scope and
details of the transactions. The Loganville Borough Council
conducted open sessions when considering the project.
105
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LESSONS LEARNED
Support of the Public Utilities
Commission canfacilKate the
process
The Chairman of the PPUC was supportive of the
project and of large regional water systems in general. PPUC
support was instrumental to achieve fast approval of the
Certificate of Public Convenience.
CONTACT
William Morris
President
York Water Company
130 East Market Street M-89
York, Pennsylvania 17405
(717) 845-3601
106
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DRINKING WATER
Contract Operation and Maintenance
PUBLIC WATER SYSTEM
LITITZ, PENNSYLVANIA
Lititz, Pennsylvania
Due to increasing problems with water quality
in the wastewater and drinking water systems
and a lack of qualified personnel, the Borough of
Lititz contracted with PSC Engineering to
operate and maintain their water supply system
Unlike most operation and maintenance agreements,
the contract combined services under one contract
for both utilities
The partnership of PSC and the borough led to
improved water quality and cost-effective operation of
both utilities
SUMMARY
The Borough of Lititz, Pennsylvania contracted with PSC Engi-
neering to operate and maintain both the drinking water supply and
wastewater treatment systems. The systems were experiencing in-
creasing water quality problems and lacked the necessary technical
personnel to deal effectively with those problems. Combining operation
and maintenance of both utilities under one contract contributed to the
success of the project. The arrangement increased efficiency and
minimized duplication of efforts, water quality problems were solved and
operating costs were held within 1 percent of those incurred under
public operation.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner (owner)
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Lititz, Pennsylvania
PSC Engineering Services
7,590
$13360
Borough Council
June1988
Ongoing
107
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Lititz needed a private
partner with technical
expertise to ensure that
water supply and
wastewater services met
environmental standards
Due to the continual upgrading of federal, state, and
local health and sanitary requirements, the Borough of Lititz
was experiencing difficulty maintaining water quality in both
the drinking water supply and wastewater treatment systems.
The costs of maintaining the systems (which included a 3.5
mgd wastewater treatment plant and a 3.0 mgd drinking water
plant) were straining the financial resources of the borough as
increasingly sophisticated engineering expertise was required.
The ability of the borough council to properly respond to utility
problems was also difficult due to the highly technical nature of
modern water systems. The options for the borough council
were to upgrade the relatively small systems with expensive
equipment/expertise and seek substantial rate increases to pay
for the improvements, or hire a private firm to provide efficient
operation and maintenance services.
WHAT WERE THE FINANCING
ARRANGEMENTS?
The private partner is
paid & monthly fee and
is reimbursed for certain
costs above that amount
The drinking water supply and wastewater treatment
systems are owned by the Lititz Sewer Authority which leases
the systems back to the borough. The borough entered into a
3-year contract with PSC Engineering for operation and mainte-
nance of the drinking water and wastewater systems. The
contract calls for paying PSC a standard monthly fee that
remans constant throughout the life of the contract. PSC is also
paid a monthly "reimbursable" fee for costs incurred above
those covered by the standard fee. The cost structure for the
reimbursable fee is based on increases in pollutant strength,
water volume, and power costs. When additional costs have
not been incurred, the reimbursable fee must be returned to
the borough.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
The Borough Council
issued an RFP
PSC Engineering approached the Lititz Borough
Council with a proposal for operation and maintenance of the
two water systems. The council agreed originally to contract
directly with PSC however, after consultations with the union
representing plant personnel, they decided to issue an RFP.
Although several firms responded to the RFP, PSC was deemed
the most qualified and competitive in cost. The agreement
with PSC included retention of several of the original plant per-
sonnel.
108
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
PSC Engineering
Operate and maintain both the water and
wastewater systems
Provide chemicals and other supplies
1 Provide power for system operations
Hire and pay employees
Comply with all permits and applicable regula-
tions (PSC is liable for fines up to $20,000 if
non-compliance is due to PSC negligence;
system must be back in compliance within 30
days of non-compliance detection)
Borough of Lititz
I Make capital improvements
Read meters and bill customers
Determine the rate structure
HOW WAS THE PROJECT
IMPLEMENTED?
Formal state approval was not required but
personnel must be licensed by the state
WHY WAS THE PROJECT
SUCCESSFUL?
Combining operation and maintenance of
both utilities under one contract contributed
to the success of the project
Lititz Sewer Authority
Own the drinking water and wastewater
systems (lease back to the borough)
Issue revenue bonds to finance system
upgrades and improvements
Requirementsfor implementation of the contractwere
minimal. All PSC presentations to the borough council were
conducted in open sessions in accordance with state law. No
formal state approval of the contract was required however,
all operation and maintenance personnel were required to be
licensed by the state.
The provision of both drinking water and wastewater
operation and maintenance services under one contract was
cited as a factor contributing to the success of the project.
The arrangement increased efficiency and minimized dupli-
cation of effort as PSC technical personnel could be respon-
sible for both of the relatively small systems. The arrange-
ment also enhanced interaction and cooperation with the
borough since management of the utilities was conducted by
one borough department.
109
-------
WHY WAS THE PROJECT SUCCESSFUL?
(Continued)
Retaining some municipal personnel eased
the transition to private operation and
maintenance
Retention of several members of the original staff was
also cited as a factor contributing to the project's success. The
presence of those personnel eased the sometimes diff icult tran-
sition from public to private operation and management Finally,
the support of the borough council for the project was high-
lighted as a major success factor.
LESSONS LEARNED
i ft Is important to work with an experienced
private partner
It is important to find an experienced partner. As PSC
had numerous contracts with other water systems, a broad
range of technical expertise could be called on to respond to
any problem that arose.
CONTACT
Peter Low
Vice President
PSC Engineering Services Inc.
649 North Lewis Road
Limrick, Iowa 18468
(215)495-0303
110
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DRINKING WATER
Contract Operation and Maintenance
PUBLIC WATER SYSTEM
WESTMORELAND COUNTY, PENNSYLVANIA
Westmoreland County, Pennsylvania
The Westmoreland County Municipal Services Authority
contracted with American Commonwealth Management
Services for operation and maintenance of the county
drinking water system
Effective management by the private partner has led to a
significant expansion of the water system and industrial/
residential growth in the county
Higher bond ratings resulting from American
Commonwealth's participation facilitated acquisition
of 17 small water systems
SUMMARY
Under contract to the Westmoreland County Municipal
Services Authority, the American Commonwealth Management
Services operates and manages the drinking water system serving the
general Pittsburgh area. American Commonwealth's scope of duties far
exceed the routine services provided to drinking water systems in most
contract operation and maintenance agreements. Those duties include
the supervision of all departments, maintenance of accounts and
records, arranging for purchases of supplies, development of rate
schedules, and assistance with long-range planning and expansion.
The partnership of the county authority and American Commonwealth
has led to an unprecedented growth in the water system. Since the
formation of the authority and completion of the management agreement,
17 separate small water systems have been acquired. In the past 5
years, an average of 62 miles of waterlines have been installed and
1,000 new service connections have been added.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner (owner)
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Westmoreland County Municipal
Services Authority
American Commonwealth
Management Services
90,683
$15,987
County Commissioners
April 1943
Ongoing
$31 million
111
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
Private partner was chosen to provide
experienced personnel and technical guidance
on plant expansion
The primary reasons for creating the Westmoreland
County Municipal Services Authority were to regionalize local
systems, acquire small troubled water systems, and extend
water service to those areas of the county without service. A
critical factor in the acquisition of additional water systems was
the need for qualified personnel to manage the plants and
pumping stations, and to provide technical guidance on system
expansion. The authority considered using existing personnel
however, the members concluded that they did not have the
necessary engineering experience. In response, the county
entered into a contract with American Commonwealth
Management Services to provide operation and maintenance
services.
WHAT WERE THE FINANCING
ARRANGEMENTS?
Fees paid to the private partner are a
percentage of user charges collected
The authority financed purchaseof additional
wator systems w'rth revenue bonds; bond
ratings increased due to private partner's
excellent operating record
Under the contract with American Commonwealth,
fees paid to the firm are a percentage of total revenues received
from user charges by the authority. Properly planned expansion
of the water system was therefore, in the best interest of both
the authority and American Commonwealth.
Efficient operation and maintenance by American
Commonwealth were also critical in securing financing to
acquire additional water systems. The authority issued revenue
bonds to pay for the systems. American Commonwealth's
good record in operating the water systems significantly
increased the ratings of the bond issues.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
Aformal procurement process did nottake
place
When the partnership was created, American
Commonwealth was the only firm in the area with the
necessary expertise to successfully participate in the project.
No formal Request for Proposal was issued. The newly
formed authority contracted directly with American
Commonwealth.
112
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
American Commonwealth Management Systems
Supervise all departments
Maintain accounts and records
Provide routine engineering services
Hire/discharge work force
Apply for and comply with appropriate permits
Purchase supplies
Develop and implement rate schedule
Review records, policies, and procedures
Assist with planning acquisitions and expansions
Community relations'
Follow trust indentures
Westmoreland County Municipal Services Authority
Collect user charges
Oversee American Commonwealth operations
Approve acquisitions and arrange financing
HOW WAS THE PROJECT
IMPLEMENTED?
The Westmoreland County Municipal
Authority was created to provide a regional
water system
The authority contracted with American
Commonwealth and issued revenue bonds to
purchase small local water systems
In 1943, the lack of an integrated county-wide water
system was seriously hindering industrial and residential
development in Westmoreland County, Pennsylvania. Scattered
water systems were providing limited service and large areas
were without the convenience of a water system. To address
the problem, the Westmoreland County Municipal Services
Authority was formed. The authority immediately entered into
an operation and maintenance contract with American
Commonwealth and began to acquire small local systems
financed by revenue bonds.
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WHY WAS THE PROJECT
SUCCESSFUL?
I The Westmoreland County Commissioners
provided strong support and administrative
assistance
With participation of American
Commonwealth in the project bond ratings
increased to AAA
A significant factor in the success of the project was
the strong support received from the Westmoreland County
Commissioners. They provided the necessary administrative
assistance, particularly in the early stages, for the formation of
the authority. Another significant factor was the high bond
ratings resulting from American Commonwealth's participation
in the project. The AAA bond ratings facilitated the authority's
acquisition of other local water systems.
LESSONS LEARNED
Effective management by a private partner
can be aforcefor growth and expansion of
water systems
Effective overall management of the water system
through a public-private partnership was the critical force
behind the growth of the water system. That growth was
evidenced by an increasing investment in water services from
$2 million in assets when the authority was formed to over
$200 million today.
CONTACT
Robert Harner
Vice President
American Commonwealth Management Services
800 West Hershey Park Drive
Hershey, Pennsylvania 17033
(717) 533-5000
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DRINKING WATER
Turnkey Contract
PUBLIC WATER SYSTEM
MYRTLE BEACH, SOUTH CAROLINA
Myrtle Beach, South Carolina
SUMMARY
Infilco-Degremont Inc. designed, constructed, and main-
tained an ozone treatment plant for Myrtle Beach, South
Carolina on a turnkey basis, agreeing to construct a system
that would meet explicit performance specifications set by the
city
Construction of this innovative form of treatment plant has
resulted in the provision of high quality drinking water to
Myrtle Beach customers
The turnkey arrangement allowed the city to reap the benefits
of applying a sophisticated and innovative technology without
taking the risk of investing in a system that might not
measure up to performance expectations
To address a'seTere water quality problem in the drinking water
system, the City of Myrtle Beach decided to construct an ozone pre-treat-
ment plant. As ozone treatment is a new and innovative technology
requiring specialized expertise, the city contracted with Infilco-Degremont
Inc. (ID!) to design, construct, and maintain the plant. Due to its
innovative nature, the city gave 1DI significant flexibility in the design and
construction phases of the project. To ensure construction of an
effective treatment system however, the city required IDI to meet specific
"start-up" and performance specifications for the plant. The agreement
between Myrtle Beach and IDI resulted in the provision of high quality
drinking water to residents of Myrtle Beach.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner (owner)
Private Partner
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Myrtle Beach, South Carolina
Infilco-Degremont Inc.
27,800
$16,298
Mayor/City Council
July 1985
Ongoing
$2.2 million
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
I The city needed a treatment plant that could
provide ozonation; the private partner had
the technical expertise to design and
construct such a plant
WHAT WERE THE FINANCING
ARRANGEMENTS?
Construction was financed with revenue
bonds; increased operation costs were paid
by a 20 percent increase in user charges
In 1985, the Myrtle Beach area was experiencing severe
water quality problems in their drinking water system. The
water, which was pumped from a local aquifer, contained high
levels of fluoride and sodium. As these levels exceeded both
state and federal drinking water standards, the city Was issued
a state enforcement orderto bring the system into compliance.
To comply with the order, the city considered removal
of the contaminants in the aquifer. Preliminary studies how-
ever, indicated that the cost of such a project would be pro-
hibitive. In addition, the studies revealed that the aquifer had
become severely depleted, only having enough capacity to
last until the year 2010.
As a more cost-effective solution, the city decided to
use fresh waterfrom the intercoastal waterway as the drinking
water source. Although in abundant supply, studies indicated
that the water contained high levels of organics and color and
would require circulation through a pre-treatment plant. Ozona-
tion, a pre-treatment process using ozone, was found to be the
only form of treatment capable of removing the undesirable
organic substances and high color. Ozonation is an innova-
tive and technically complex process. The city lacked the
necessary expertise to design, operate, and maintain such a
plant. Accordingly, Myrtle Beach contracted with IDI to design,
construct, and maintain the system.
Construction of the ozone treatment plant was financed
through the issuance of revenue bonds. Operation and mainte-
nance of the plant was financed through a 20 percent increase
in user charges.'.
IDI was first awarded a fixed price contract for design
and construction of the plant, with services remunerated on a
performance basis. IDI was subsequently awarded anoptional
3-year contract for maintenance services, with payment for
these services based on an annual payment schedule.
Construction of the ozone treatment plant was financed
through the issuance of revenue bonds. Operation and mainte-
nance of the plant was financed through a 20 percent increase
in user charges.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
City issued an RFP with broad specifications
for design of a treatment plant
A standard RFP was issued by the city for the con-
tract. With regard to the design of the system, offerers were
given very broad specifications as to need for an ozone
treatment system, but were allowed to utilize their own exper-
tise in designing details of the system. To ensure construction
of an effective treatment plant, the contract also required that
the plant meet specific start-up and performance specifica-
tions. Use of such performance specifications implied that the
private partner shared in the financial risk inherent in the
construction of such an innovative system.
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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Myrtle Beach
I Own the plant and pre-treatment system
I Operate the ozone pre-treatment system
Operate the water plant
I Issue bonds to finance the system
Infilco-Degremont Inc. (IDI)
Design the system
I Construct and start-up the system to demonstrate
performance
Maintain the ozone system
HOW WAS THE PROJECT
IMPLEMENTED?
The state was only involved in licensing plant
personnel
The city undertook a public information
campaign
Formal state approval of the contracts was not required.
All maintenance personnel required state licensing. The City of
Myrtle Beach undertook a massive public information campaign
to relay information about the new system, outline reasons for
rate increases, and respond to early technical problems that
caused poor tasting water.
WHY WAS THE PROJECT
SUCCESSFUL?
I Cooperation between the public and private
partners
I The city provided IDI with independence and
flexibility in design as long as performance
specifications were met
I Public relations campaign raised support
Outstanding cooperation between the City of Myrtle
Beach and IDI was cited as the most significant contributor to the
project's success. The city was dedicated to ensuring the
success of the project and to the provision of highqualitydrink-
ing water to the public. As the ozone system was a new and
innovative technology, the city also provided IDI with sufficient
independence to modify the design where needed during the
construction process.
The extensive public relations campaign by the city
concerning the plant's importance and impact on residents
was also cited as an important factor for the success of the
project.
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LESSONS LEARNED
Contract flexibility and performance
specifications were important for the
success of the project
Contract flexibility allowed IDIto utilize theirown exper-
tise early in the process, while performance specifications
ensured construction of an effective system. The RFP issued for
construction of the ozone plant outlined broad specifications for
the plant, but allowed the individual contractors to develop the
specific design. This flexibility in design specifications was in
contrast to the traditional approach where a contractor bids on
construction of a specifically designed plant.
CONTACT
Mike Dimitriou
Product Managerfor Ozone Systems
Infilco-Degremont Inc.
P.O. Box 29599
Richmond, VA 23229
(804) 756-5000
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For More Information or Additional Copies Contact:
U.S. Environmental Protection Agency
Office of the Comptroller
Resources Management Division
(H-3304)
401 M. Street, S.W.
Washington, DC 20460
Telephone: (202)245-4020
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